matty
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Post by matty on Sept 17, 2021 16:44:23 GMT
I've own a limited company which I have loaned money.
Is there a way I can setup an IFISA loan to my company instead?
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IFISAcava
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Post by IFISAcava on Sept 17, 2021 17:44:11 GMT
I've own a limited company which I have loaned money. Is there a way I can setup an IFISA loan to my company instead? My accountant was very dubious about its legality mind you.
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matty
New Member
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Post by matty on Sept 17, 2021 19:08:55 GMT
I've own a limited company which I have loaned money. Is there a way I can setup an IFISA loan to my company instead? My accountant was very dubious about its legality mind you. Thanks! That's exactly the sort of thing I was looking for - will check this out with my accountant.
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Post by danraj on Oct 11, 2021 9:01:18 GMT
Thanks for the referral. @ifisacava - If you wish, I would be happy to show your accountant the research undertaken in the design and development of this product, including our correspondance with HMRC. matty - it is likely that your accountant hasn't heard of the Innovative Finance ISA or how it can be used to wrap your Director's Loan Account in a tax-free ISA. If you introduce us, we would be happy to explain how it works. Feel free to reach out if you have any further questions. |
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aj
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Post by aj on Oct 12, 2021 11:52:19 GMT
Even if this somehow counts as tax avoidance and not tax evasion, it's completely unethical.
Proceed if you must but please stop using taxpayer funded services if you don't believe you have an obligation to fund them?
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Post by danraj on Oct 12, 2021 12:08:59 GMT
The loans need to be commercially considered, meanning the interest rate cannot be exploitative.
Most entreprenuers are out of the ISA market because they prefer to invest in their own business, rather than in stocks and shares or a cash ISA. For many small business owners, their business is their main investment. They are taking a risk, normally with funds they have previously paid tax on. Many SMEs fail, so I think it is appropriate that they should be able to use the ISA wrapper for their preferred investment. After all, its a limited amount each year that they can use.
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IFISAcava
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Post by IFISAcava on Oct 12, 2021 13:01:14 GMT
Even if this somehow counts as tax avoidance and not tax evasion, it's completely unethical.Proceed if you must but please stop using taxpayer funded services if you don't believe you have an obligation to fund them? So (if I had personal money in an ISA to loan) it's ethical to lend to your business but not mine? And if my business needs a loan it's ethical to take it from you but not me?
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aj
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Post by aj on Oct 12, 2021 13:29:20 GMT
The 'lender' (individual) and 'borrower' (entity owned by an individual) are the same person here. There is absolutely nothing stopping them from using a traditional directors loan to invest in their company without paying you fees if that's what they wanted to do. The 'risk' you mention is practically zero, at the first sign of trouble in the business which creditor is the director going to repay first? Themselves.
The only reason for this product is to reduce corporation tax payments while simultaneously taking profits out of a company tax-free.
Legal? Maybe. Corrupt and immoral? Yes.
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aj
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Post by aj on Oct 12, 2021 13:41:09 GMT
Even if this somehow counts as tax avoidance and not tax evasion, it's completely unethical.Proceed if you must but please stop using taxpayer funded services if you don't believe you have an obligation to fund them? So (if I had personal money in an ISA to loan) it's ethical to lend to your business but not mine? And if my business needs a loan it's ethical to take it from you but not me? 1. Lend it to your own business, but not within an ISA. This is what our tax system is set up to cope with. 2. If your business needs a loan, you have incentive to borrow at the lowest achievable rate. 'Lend' to yourself and this vital balance is removed.
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IFISAcava
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Post by IFISAcava on Oct 12, 2021 15:59:26 GMT
The 'lender' (individual) and 'borrower' (entity owned by an individual) are the same person here. There is absolutely nothing stopping them from using a traditional directors loan to invest in their company without paying you fees if that's what they wanted to do. The 'risk' you mention is practically zero, at the first sign of trouble in the business which creditor is the director going to repay first? Themselves. The only reason for this product is to reduce corporation tax payments while simultaneously taking profits out of a company tax-free.Legal? Maybe. Corrupt and immoral? Yes. The only reason for an S&S ISA is to avoid paying capital gains tax whilst simultaneously receiving dividends tax free. Why not just invest outside of (immoral) S&S ISAs?
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Post by danraj on Oct 12, 2021 18:14:22 GMT
A large number of our clients are SMEs, not paying corporation tax because it is offset by R&D claims, or it is a loss making business.
If you have some savings (such as a S&S ISA) and your business needs to borrow, the you need to remove the tax saving wrapper and if you charge interest to the business then (above the £1k interest allowance) interest becomes taxable in line with income. So many owner-managers (who do this) lend with zero interest charged to the business.
The DLA ISA allows them to use/keep the tax wrapper, on a limited amount, to benefit from tax-free gains. Quite often this is implemented in firms where there isn’t even any avoidance of tax, it simply the case that someone wants to transfer their ISA savings into their business.
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toffeeboy
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Post by toffeeboy on Oct 13, 2021 10:22:06 GMT
A large number of our clients are SMEs, not paying corporation tax because it is offset by R&D claims, or it is a loss making business. If you have some savings (such as a S&S ISA) and your business needs to borrow, the you need to remove the tax saving wrapper and if you charge interest to the business then (above the £1k interest allowance) interest becomes taxable in line with income. So many owner-managers (who do this) lend with zero interest charged to the business. The DLA ISA allows them to use/keep the tax wrapper, on a limited amount, to benefit from tax-free gains. Quite often this is implemented in firms where there isn’t even any avoidance of tax, it simply the case that someone wants to transfer their ISA savings into their business. If that is the case then why do you use corporation tax as a selling tool in the examples on your website? You are telling us that one thing happens then on your website trying to get people to use your loans showing how much they can save on corporation tax therefore encouraging them to do this to avoid tax on money they are paying to themselves. I have to say that I like the idea and don't see anything wrong with it as long as the company needs the loan and it isn't being used to avoid paying tax.
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Post by danraj on Oct 13, 2021 16:38:03 GMT
Because it’s an ancillary benefit (in these case studies), worthy of mention. It is not however, one of the main reasons for arranging the loans.
Notice, there is no mention of the savings gained from avoiding NI contributions.
If you have an ISA, and want to use that money in your business, it makes sense to keep the tax-saving benefits of the ISA wrapper.
We try to mitigate exploitation of the service. Very few clients price the interest above the average for our platform. Where they do, they are required to evidence how the interest rate is commercially considered. This means they evidence, to us, the interest rates the business pays to other lenders.
Glad you like it.
DR
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PS: We have a customer referral scheme where we'll pay £100 for each introductions that lead to new business.
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KoR_Wraith
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Post by KoR_Wraith on Oct 13, 2021 23:36:47 GMT
Your website suggests an unsecured business loan interest rate of ~20% to be reasonable.
But that's a completely different risk profile and thus proposition from loaning money to your own company where you have total control of repayments. Different risk profiles should return different interest rates. IMO that's the crux of the ethical argument against this product.
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IFISAcava
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Post by IFISAcava on Oct 14, 2021 20:41:14 GMT
Perhaps it may help to remember that if you use your ISA for one purpose, you can't use it for another, so whichever one you don't use it for you will pay tax on. I don't see that it is unreasonable to choose the most tax efficient use for your (limited amount of) ISA money (money that the government has specifically earmarked to be tax-free).
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