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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5113
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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An initial investment was made into a start up sole trader

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An initial investment was made into a start up sole trader business by my business partner who has his own limited company and who is a higher rate tax payer. He is now saying that when this money is repaid to him from the sole trader business he will have to pay 40% tax on it as earned income and this will have to be accounted for in the amount that is repaid. Is this correct?
Thank you for your question.An initial investment into a business is either a loan to the business or capital introduced.Repayment of this investment does not constitute income that is taxable but is repayment of capital.Your partner's understanding is incorrect. He will not have to pay any tax on it nor would he have to report this on his tax return. 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. and other Tax Specialists are ready to help you
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