Company money to pay personal mortgage

Jaco70

I have a 140k mortgage on my 500k house, through a high street lender.

I have enough spare money in my small limited company to take 140k out, clear the mortgage, and repay at maybe £ 1000 pcm, rather than the 1350 I’m paying now (I have around 11 years left on the loan).

I don’t want to ask my accountant at this stage, as he makes everything sound so complicated (although I wouldn’t actually proceed without telling him).

It seems crazy not to be able to use money that is essentially mine (although I’m well aware a limited company is its own entity, but I own the shares). The company has zero debt, and the premises we operate from are also owned outright, by my parents.

I could draw say 100k dividend, but after tax would probably end up with nearer 50k, as I’m already above the higher rate tax band. This does not appeal at all.

I’d feel happier essentially borrowing from myself, and at a slightly lower interest rate, although I realise it will all have to be paid back in the end. 

Two years ago, when repayments were about 950 pcm, and I probably didn’t have quite enough in the business anyway, it seemed much less of an issue.

Any advice welcome.

Brie

I'm not an accountant but this sounds a bit dodgy to me.  Your accountant might find a way to make it work but I can't see how without the big tax bill.

Jaco70

Brie said:

I'm not an accountant but this sounds a bit dodgy to me.  Your accountant might find a way to make it work but I can't see how without the big tax bill.

Thanks Brie, but what kind of tax bill? A bill for me or the company?

For what reason can’t my company act as a lender, with me making regular repayments, as I currently do to the mortgage provider ?

To be clear, I’m not criticising your advice, I just don’t understand why the arrangement is complicated. To the uninitiated, ie me, it sounds so logical. 

It sometimes feels that there are very few ‘perks’ to owning a business, as my accountant always points out an obstacle to anything I suggest. 

Inbetweeners

It is absolutely not 'your' money.

Do a search for Directors Loan Account and you will see why there is a potential charge on both you and the company.

Hoenir

Consult your accountant for proper advice. . 

Jaco70

Inbetweeners said:

It is absolutely not 'your' money.

Do a search for Directors Loan Account and you will see why there is a potential charge on both you and the company.

Whenever I search directors loans, it’s just accountancy firms copying and pasting from HMRC website about short term loans up to 10k.

I honestly can’t believe that no business owner in the UK borrows larger figures than that from their company, but maybe I’m wrong.

Thanks for you help. 

Brie

Jaco70 said:

Brie said:

I'm not an accountant but this sounds a bit dodgy to me.  Your accountant might find a way to make it work but I can't see how without the big tax bill.

Thanks Brie, but what kind of tax bill? A bill for me or the company?

For what reason can’t my company act as a lender, with me making regular repayments, as I currently do to the mortgage provider ?

To be clear, I’m not criticising your advice, I just don’t understand why the arrangement is complicated. To the uninitiated, ie me, it sounds so logical. 

It sometimes feels that there are very few ‘perks’ to owning a business, as my accountant always points out an obstacle to anything I suggest. 

I would think there would be at least income tax deducted if your company is paying you money.  Possibly NI by both?

And I believe there were a number of cases about 20+ years back where directors did similar things to what you are discussing and got into a heap of trouble for it.  I'm not suggesting that you would be attempting fraud, embezzlement or even just misappropriation of funds.  Robert Maxwell springs to mind and obviously what you are thinking of is no where near that. 

But the whole thing has led to a lot of regulations about separating personal and business finance.  And this is why your accountant would want the whole thing tied up with a lot of string to ensure that you aren't accused of something.  You could try talking to a different accountant perhaps?  Just in case they have a more imaginative way to make this work. 

It does seem to make sense in some ways but as I said - I'm not an accountant!!

Jaco70

Hoenir said:

Consult your accountant for proper advice. . 

On other issues I’ve found the advice on here quite helpful and ‘proper’, which is why I asked the speculative question. People are often quite knowledgeable, which is why forums like this are useful. Then I consult a professional before proceeding. 

But thanks for your advice 👍

Jaco70

Brie said:

Jaco70 said:

Brie said:

I'm not an accountant but this sounds a bit dodgy to me.  Your accountant might find a way to make it work but I can't see how without the big tax bill.

Thanks Brie, but what kind of tax bill? A bill for me or the company?

For what reason can’t my company act as a lender, with me making regular repayments, as I currently do to the mortgage provider ?

To be clear, I’m not criticising your advice, I just don’t understand why the arrangement is complicated. To the uninitiated, ie me, it sounds so logical. 

It sometimes feels that there are very few ‘perks’ to owning a business, as my accountant always points out an obstacle to anything I suggest. 

I would think there would be at least income tax deducted if your company is paying you money.  Possibly NI by both?

And I believe there were a number of cases about 20+ years back where directors did similar things to what you are discussing and got into a heap of trouble for it.  I'm not suggesting that you would be attempting fraud, embezzlement or even just misappropriation of funds.  Robert Maxwell springs to mind and obviously what you are thinking of is no where near that. 

But the whole thing has led to a lot of regulations about separating personal and business finance.  And this is why your accountant would want the whole thing tied up with a lot of string to ensure that you aren't accused of something.  You could try talking to a different accountant perhaps?  Just in case they have a more imaginative way to make this work. 

It does seem to make sense in some ways but as I said - I'm not an accountant!!

Thank you, I think I will have a chat with him.

I wouldn’t go anywhere else though, he’s been with me longer than my wife, and I don’t think I’m cut out for imaginative accounting.

I still can’t see how a simple loan, repaid with interest, is dodgy, or harms anyone other than losing the current mortgage lender a few quid in interest, but I’m pretty sure you’re correct and that this will be a non-starter. Which feels like a shame.

Thanks again.

Inbetweeners

Jaco70 said:

Inbetweeners said:

It is absolutely not 'your' money.

Do a search for Directors Loan Account and you will see why there is a potential charge on both you and the company.

Whenever I search directors loans, it’s just accountancy firms copying and pasting from HMRC website about short term loans up to 10k.

I honestly can’t believe that no business owner in the UK borrows larger figures than that from their company, but maybe I’m wrong.

Thanks for you help. 

You didn't look very hard then. Any loan over £10k would be deemed a benefit in kind generating an income tax charge on yourself and Class 1a NIC payable bythe company.

Hoenir

Jaco70 said:

Hoenir said:

Consult your accountant for proper advice. . 

On other issues I’ve found the advice on here quite helpful and ‘proper’, which is why I asked the speculative question. People are often quite knowledgeable, which is why forums like this are useful. Then I consult a professional before proceeding. 

But thanks for your advice 👍

We aren't privy to our personal financial affairs. There's no advice on here. As advice these days is highly regulated. We can merely suggest.