Sole trader questions re loan from friend

jamels2

Hi
My friend is a sole trader driving a lorry and i do his paperwork/phone calls.
Over the years he has borrowed money from me and we worked out a repayment plan over 5 years.
However the loan has no relation to the current business but he wants to pay me back via the new business.
We also need to decide on what drawings/wage he takes for his living expenses. Plus i need a small wage for helping him out.
I am new to running a business but have taken over from his dad in recording the ins and outs on a spreadsheet.
So my questions are:
1. How to account for the loan being paid back to me? Can i just set up a standing order from the business a/c? Would there need to be evidence of what i loaned him? Its built up over several years.
2. For his wage can i just transfer money from the business account to his personal account weekly/monthly?
3. For my wage how would it work as hes a sole trader?
4. Would it be easier to use 'cash' jobs with no paper trail to repay the loan?
5. Is there any need to go limited at any point?
Sorry for sounding clueless but i am new to this and have an interest in it succeeding as its a friend and i want to ensure my loan is repaid.

paddyrg

I suggest with both of you being very new to this, a chat with an accountant would be prudent, if nothing else to make sure you're keeping the books on an appropriate format and offsetting anything that can be offset. It'll probably save money overall.

As a sole trader, he is the business, so the business paying you back isn't a problem... Unless you're trying to chain tax relief on the repayment, in which case it might be, ask the accountant.
1) you'll need a paper trail to show where the money goes
2) yes, but leave a paper trail
3) you will invoice and you're also now self-employed, so have to do your own year-end accounting, or you set up a PAYE payroll and get paid by that. Either way, HMRC get a slice, which is only fair and natural (depends how much you earn). See your accountant for details.
4) NO! No, no, no, no. Don't even think about this. I'm a little alarmed that before even getting into the basics of running a business that black market/off-book jobs are a consideration. The question really is saying you need to ask an accountant. This is exactly what they do and are for.
5) Probably not, but it depends on numerous factors including liabilities, sector, turnover, division amongst shareholders, tax, etc. I'm coming back to that accountant tip again ;-)

jamels2

Thanks.
So i can repay the loan as long as im not claiming vat back.
If i pay my friend via drawdown then he can withdraw cash from his personal account to give me pocket money? I already have a full time job and do this on top an hour a day roughly plus taking phone calls.
Will make sure it all goes through the books, no cash jobs.
Cant see why we need to go limited as he has no assets and rents the house from his dad.

paddyrg

jamels2 wrote: »

Thanks.
So i can repay the loan as long as im not claiming vat back.

I really, REALLY recommend seeing an accountant - the fact that you mention VAT now but not in the initial post is a big red flag. VAT and income tax on earnings are entirely very separate things. Tax and bookkeeping require clarity - please, please make an appointment to see a chartered accountant today before going any further as getting this right from the start is far more important than saving a few quid.

Being paid "pocket money" from cash - please just stop now and get clarity from your own accountant - it's not pocket money if it's paid work, it's earnings.

I'm urging you to do this as HMRC are not people to mess with, they don't make exceptions for not knowing what's what. Please do see an accountant, get them to get you started, keeping books in the right format, getting paid properly, etc.