Paying Corporation Tax

InsideInsurance

I guess I do have my cake and eat it.

Whilst I dont currently have a mortgage I never had any issues getting one as a contractor even post credit crunch. Obviously I classify myself as a business consultant, as my contract states and as my business is classified as a business consultancy.

There are contractor mortgages where the amount you can borrow is based on your day rate and they offer to lend you stupid amounts of money but have the higher interest rate/ fees and want better LTVs.

I had a regular mortgage as a normal small business owner with my income judge on my salary + dividends. My maximum borrowing was about half what the contractor mortgage people were willing to offer but they offered normal terms, fees and LTVs

mowdiewark

Aquamania wrote: »

So you already have a type of secured lending i.e. a mortgage

Presumably when you extend your home, the property will be worth more (and hopefully the extention will cost less than the value it adds)

Yes, I do have a mortgage (taken out before I was a contractor). Do lenders take this into consideration as hopefully it will increase the value of my house to an extra £60 - £70k. This is one of the main reasons why I want to do this and not too worried about the extra costs.

InsideInsurance

mowdiewark wrote: »

You're pretty spot on with your maths! Profit was slightly higher though :-). SOunds like either you work for the HMRC or are a contractor yourself!

Also most non-secured loans (personal loans) only go up to £25K - hence the reason why I want to use the cash in my business bank account.

Maybe you're right about specifying my employment status. It's always a grey area when it comes to employment status as being limited isn't normally an option you can select.

Legally it isnt a grey area at all, you are an employee of your limited company, even if inside of IR35. However poor souls in banks call centres etc dont get the best training in the world and get confused.

From an underwriting perspective there is a difference as your financial fate is more closely tied to that of your employer than your average employee but the same can be said for many CxO types in corporations - in the USA in particular most get a $1 salary and all their real income comes as shares and dividends (no capital gains or income tax on dividends in the USA).


The £25k limit on unsecured loans is a throwback to the old CCA limit. Selling unregulated loans to consumers who arent HNW opens a world of problems (though for business and HNW its beneficial, for the lender at least and possibly the lendee). Higher limits are available but tend to be only in the private banking sector where you need existing relationships. I have seen an increase in credit cards with over 25k limits since the CCA was changed though.

zygurat789

mowdiewark wrote: »

Yes, I do have a mortgage (taken out before I was a contractor). Do lenders take this into consideration as hopefully it will increase the value of my house to an extra £60 - £70k. This is one of the main reasons why I want to do this and not too worried about the extra costs.

The first port of call for a loan for an extention is to increase your existing mortgage. You don't mention that they have turned you down.

My overall impression is not that you are trying to embezzle but that you might be about to overextend yourself. You would. no doubt, protest in the same way but then everyone else who overextended themselves only found out too late.

mowdiewark

Aquamania wrote: »

Whilst it is never a good idea to mix up the finances of two separate legal entities, the taxman won't care where the money comes from. (and I certainly don't expect the builder will either )

Depending on the exact timings, either you can lend the business money (in the form of credit from a personal credit card) which it then repays.
Or the company can lend you the money (to pay the builder) which you then repay by funding it's corporation tax.
(Be careful in this latter case as getting the timing wrong could produce a tax liability, effectively for a tax free loan)

Either way, it seems you don't have the money to pay the builder. Probably the cheapest form of borrowing (save for any short term, introductory offers) is to obtain a mortgage for the extention.
Of course that will be secured against the property and why it is cheapest. If you are adament you do not want any charge against the property, then consider a non-secured loan. It will cost more than a mortgage and will usually be a shorter term, but it will be cheaper than a credit card.

Thanks Aquamania, this is exactly the type of advice I was after (not all the accusations of money laundering or living beyond my means, etc). I think you're the only poster who actually understood my situation.

Anyway, I kinda suspected that the HMRC would frown upon it if they were aware of it because as you say I'd be getting a tax-free loan from my company. Do you know what the tax liability would be if I did declare it as a loan? Wonder if it would be cheaper than a non-secured loan.

When you say 'depending on exact timings' what do you mean by that? I was thinking of doing the latter that you mentioned. My Corporation Tax is due beginning of September.

I also take on-board what you say about a remortgage. However, I don't have enough equity in my house to get the amount I need. It's frustrating because in my 15 years of paying my mortgage, I have never missed one payment - I have a AAA credit rating and have savings (a lot more than most of the people I know). Without trying to sound too smug, my finances are in a very healthy state and if I'm struggling to get money for home improvements, I feel sorry for people who are worse off then me.