Tony, thank you for your prompt reply.
As you are already filing your tax return, I presume you have a unique tax reference number (UTR).
As you start self employment as a sole trader, you should register for Class 2 NI and set up a dierct debit to pay your monthly Class 2 NI contributions. For tax year 2015-16 it is a flat rate of £2.80. More information on NIC rates and thresholds for self employed can be found under section 5 here
Now we come to specific points raised..
Due to the fact that the initial funds are a loan am I required to pay tax on the monthly payments?
Loans and repayments of loans are outside the scope of taxation as it is return of capital. If you were to make a payment that included interst on the loan then it has tax implications. Repaying loan that has no interest levied has no tax consequences.
Is the above the optimal way of setting up as a sole trader, or would you recommend an alternative way?
There is no right or wrong way of setting up as a sole trader. You appear to be doing the correct thing.. securing funds for working capital and running costs during start-up period.
What is important as far as initial loan is concerned .. you have it properly documented to alleviate any potential issues from HMRC or anyone in the future. As the sum is significant, I would advise you to alert your bank of impending inflow of funds to comply with money laundering regulations.
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.