Alan Pink considers the tax merits and demerits of clients borrowing money from their close company.
On the face of it, it’s puzzling that there are any tax implications when one simply borrows money from a limited company. A loan, after all, isn’t income and, therefore, shouldn’t be subject to income tax; and it doesn’t consist of the proceeds of disposing of an asset and, therefore. shouldn’t be within a million miles of capital gains tax.
However, if you delve an inch below the surface of this sort of reasoning, you’ll see that there are tax implications of borrowing money, for the reason that it would otherwise be a straightforward and tax-efficient alternative to taking income from that company.
The principal tax charges
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