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bigduckontax
bigduckontax, Accountant
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We as director of a pin put incorporated in March 2014 have

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Hello, we as director of a pin put incorporated in March 2014 have put £20k in to the company in March 2015 as a loan to the company. Does this: forbid us from setting up as SEIS and EIS individuals (if we invest in our company with our money); forbid the company to be SEIS compliant; increase our taxes as individuals when we will exit (through selling the business most likely or sell our shares); increase the company's taxes? Thank you so much! Daniele
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
Spin out (not pin put!)
Expert:  bigduckontax replied 1 year ago.

Hello Daniele, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Loans to companies by directors, shareholders and [misguided - joke] friends are common features in companies setting up in business. It is a quick way of obtaining favourable cash flow. The basics of SEIS, a tax relief measure for individual investors, are set out here:

https://www.gov.uk/guidance/seed-enterprise-investment-scheme-background

Having loans by individuals to a company in place does not impinge on the viability of SEIS.

There are a lot of complex rules relating to SEIS and many of them are quoted here;

https://www.gov.uk/guidance/seed-enterprise-investment-scheme-investment-and-investor-requirements

It is pitifully easy to breach these these restrictions.

I do hope that you have found my reply of assistance.

Customer: replied 1 year ago.
Hello keith, thanks. I was asking about whether it affects us as directors in becoming SEIS and EIS investors and also whether the fact that we have loaned money to the company affects our future tax bill at exit?
Expert:  bigduckontax replied 1 year ago.

According to the Gov UK web sites it does not appear so. Making loans to companies and the repayment thereof has no effect on the taxation affairs of either the company or the lenders unless interest is payable on the loan in which case it is income in the hands of the recipient and must be declared on the individuals' self assessment tax return and reduces the profit of the company for Corporation Tax (CT) purposes.

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Customer: replied 1 year ago.
also if the investment was going to be in the form of us perceiving a salary and put them back in to the company to sustain cash flow - would that give rise to more tax at exit? Thanks so much!
Expert:  bigduckontax replied 1 year ago.

Do you mean receiving rather than perceiving?

Customer: replied 1 year ago.
Yeah, basically, we have a grant from EC and in order to help our cash flow we were thinking about getting paid from the company from the grant for part of the work done and put that salaries money directly back in to the company in some form (either directors' loan again, or as equity investment).
Expert:  bigduckontax replied 1 year ago.

Sounds like my daughter who received an EU grant to persue her European Masters degree in Greece, Italy and Holland without any of the argy bargy involved with an UK one!

Remember, if you draw salary from the company (allowable against CT), then if you are a director it must be paid through PAYE channels with appropriate deductions of Income Tax (IT) and NI which you will find a further administrative palaver.

Putting it back as a directors' loan and the tax treatment thereof we have already discussed.

Customer: replied 1 year ago.
Ok, so basically the loan does not affect our ability to register as SEiS and EIS investors, nor the company's ability; the tax we will pay when selling the original shares issued when we incorporated the company are still subject to the same capital gains tax rules, so they are not affected by that. But then, can we become registered (SEIS? EIS? Any other scheme?) to benefit from Any tax relief on the original incorporation shares, or will we pay capital gains tax regardless?
Expert:  bigduckontax replied 1 year ago.

The SEIS has the following provision [source: Gov UK web site]:

'There is a ‘carry-back’ facility which allows all or part of the cost of shares acquired in one tax year to be treated as though the shares had been acquired in the preceding tax year. The SEIS rate for that earlier year is then applied to the shares, and relief given for the earlier year. This is subject to the overriding relief limit for each year. Note that there is no SEIS rate earlier than 2012 to 2013, so there is no scope for carrying relief back before that year.'

I think that covers your point Daniele

Customer: replied 1 year ago.
Ok so basically shares issued in March 2014 would not now qualify to any relief, correct? Thanks a lot.
Expert:  bigduckontax replied 1 year ago.

Yes they would qualify under the terms set out in that extract except that there would be no requirement to invoke the prior year procedure

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Customer: replied 1 year ago.
Ok thanks so much.
Expert:  bigduckontax replied 1 year ago.

Delighted to have been of assistance. It may be useful to employ a local, trusted professional to set up your SEIS for you.

Thank you for your support.