Do I pay tax on my own money I put in business account?

CharllieSays

I have a small hobby business that I am the only employee of. I don't take any salary right now. I do occasional side projects as a contractor for other people, but don't earn enough to justify paying an accountant. Until now I have filed accounts myself as they were very basic. I'm now planning to move some of my personal savings into the business account to pay for any additional tools in future. But I'm unsure if this will count as taxable income or a loan from myself to the business or what? I haven't been able to find a clear answer anywhere. Are there any SME owners here who can clarify this? Thanks.

Jeremy535897

Are you a sole trader, or a director/employee of your own limited company? I ask because you describe yourself as an "employee", but if you filed accounts yourself that sounds more like you are a sole trader.

If you are a sole trader, merely transferring money from your savings account to your business account is ignored for tax. (There is one case where it may help with tax, which is where you claim tax relief on interest paid when the business is not worth anything, but I assume this is not relevant.) You can't lend money to yourself. If you introduce money into your business, that is capital introduced, not income or a loan.

A quick search and I found this site which may explain some of the basics:
https://www.accountingcoach.com/accounting-basics/explanation

CharllieSays

I'm the director of a Ltd company. I've filed accounts myself as they've been very basic so far. Sorry, I should have made that clear in my original post.

drumtochty

As you are a director of your limited company. In your records have a columb for a directors loan account

Lets say there is £100 in the company from work done but you put £500 from your savings into the company.

Total assets are £600 cash but creditors due lets say withing one year £500.

The directors loan account is £500 and say your profit is £100. You can take out the £500 from the directors loan account without paying tax and the directors loan account would now be zero.

The remaining £100 you either pay yourself and put that through PAYE and pay tax on that and make no profit in the company that year.

Or you make a profit for the year of £100, pay corporation tax of £19. You use the remaining £81 to pay yourself a dividend and that is taxed in line with dividend legislation.