In the current economic climate most companies are finding it extremely hard to source finance. One avenue worth exploring is where a director loans personal funds to the company and charges interest to the company.

Where a company is categorised as a close company (i.e. owned by five or fewer people) and where the director in question owns 5% or more of the company, any interest paid by the company to him or his associates could be treated as a distribution and taxed at his marginal rate of tax.

The interest will only be treated as a distribution where the interest payment exceeds the lower of 13% of the total of loans to the company from directors, or the nominal amount of issued share capital together with share premium.

Tags: financing, SME financing