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bigduckontax, Accountant
Category: Tax
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I have a UK limited company in which I own all the shares. I

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I have a UK limited company in which I own all the shares. I have been asked by a friend of mine overseas if I will lend his company some funds. I would rather not make this loan personally but I am considering increasing my Directors Loan account in UK Limited and then make a loan from the company to him. I suppose there are two questions here. Firstly, I am presuming that this would be in order & secondly would I be able to put into the loan agreement with his overseas company that there is a some right of 'offset' with me personally in case my UK company becomes insolvent?

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

Yes it would be perfectly in order. Any interest paid on the loan would be liable to Income Tax (IT) in your hands.

The Directors Loan account would rank pari passu with all other creditors unless it were created as preference creditor eg secured on the company's assets and even then if the company goes down the tubes there may still be no funds available to meet the liability and there will be the costs of setting up such a loan to be taken into account also.

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

Customer: replied 1 year ago.
Many thanks for your reply. Lets say the company did go down the tubes and the only thing left of value in the company was the outstanding loan to my friend's company, would there be a way I could create a right of 'offset' so that my friend's company could pay me back direct & offset against my increased director's loan account. I know that sounds complicated but if I make these loans then I would like to take as much risk out of it as possible. I think that as I & my company are separate legal entities this might not be straightforward. Also I would rather keep things completely clean from an HMRC point of view!

Providing that no third party including HMRC and the Receiver lost out as a result of you being repaid direct then I think that this would be feasible. You could, of course, get round this by making the loan directly, but this is where we came in!

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Customer: replied 1 year ago.
Many thanks Keith

Delighted to have been of assistance.

Thank you for your support.