I want a loan from my firm

Can I temporarily borrow the cash reserves that are surplus to short-term needs from my business to help me with my house move?

AM writes: My company has cash reserves that are surplus to short-term needs. Is it possible to temporarily borrow this money from the business? I am moving house and need to buy the new home before I sell my old one, which requires a £150,000 short-term loan. I have no problem with paying a full rate of interest to the company, as this will be small compared with the cost of obtaining a secured loan.

This kind of loan became possible with the introduction of the Companies Act 2006, although there are issues to be aware of, writes Jon Sutcliffe, partner at Kingston Smith LLP. A memorandum detailing the terms of the loan must be minuted and sanctioned by the shareholders.

The tax position may require some planning. The timing of the loan is critical if there is a risk of the loan being outstanding at the end of the accounting period. If it is, and then does not get repaid within nine months of the accounting period’s end, the company will be liable to pay 25% of the advance to HM Revenue and Customs, and will only be entitled to get this repaid nine months after the end of the accounting period in which the loan is repaid.

Provided the interest you pay the company is at least the official rate of interest (currently 4%), there are no personal tax consequences for you. If the interest rate you pay is lower, you will be taxed on the shortfall.

Be aware of the risks of taking a loan from the company. As a director, you may not be acting in the best interests of the company, unless the loan is on full commercial terms. This could turn into a problem if the company became insolvent, as any liquidator would seek to recover the loan from you to settle liabilities to the company’s creditors, and could bring proceedings against the directors for breach of duty.