Loans from one sole trader to another

[xauxag]

Both my spouse and I are sole traders with our own small businesses.

Is it possible for me to make her a loan via bank transfer for business purposes? i.e. to buy stock or equipment

If so how would we both detail such a loan/debt on our respective tax returns.?

TIA

[King_Maker]

As a sole trader, you can make a loan to anybody for any reason.

Were you hoping to obtain some form of tax relief?

[xauxag]

Thx for your reply and yes, some tax relief would be good but I am unclear if this can be rolled over to future years as both businesses are within personal tax allowances this year.

It is more of me wanting to record the loans properly on both returns so we can obtain tax relief at some future date if this is possible.

Also I am unsure how to record the loan.

I have loaned money via bank transfer and I have also bought items for her business on my credit card.

How the heck is this detailed on the returns? I should employ a tax consultant I know but funds are stretched and i was first seeing if it would be simple enough to our own self assessments. The rest of the returns are fairly straightforward-it was just this areas that I needed some clarity on.

Would her accts show the incoming money as a plus and be treated as income or would it be recorded as a debt/liabilty?
Similarly for my/lenders acct would this outgoing money reduce my total income?

[section 44]

Any deduction may be restricted to how much, and at what rate, your could borrow on an arm's length basis.

[xauxag]

thx.

From reading HMRC helpsheet 222, and assuming cash basis accounting, if as a sole trader I lend (interest free) a sum of money to my wife (another sole trader) soley for business use, that this money is treated as income on her books.

Can I enter the loan i made in my accounts as an expense?

If not, then how is this amount reconciled?

Would HMRC view this loan i make as coming from my personal money or from my sole trading account? (we both only have personal bank accounts which does muddy the water somewhat)

[bd6759]

Lending money is not a business expense, it the same way as lending your wife (or anyone else) a tool or your car is not a business expense. You still are entitled to the return of the money.

This is a balance sheet entry. Your bank balance has reduced but your debtors have increased. This transaction does not go into your profit and loss account.

[xauxag]

great answer thx

[xauxag]

Just to follow up on your answer,

if i understand correctly,
- its is not an expense for me to lend her business money and
- it is not income for her to receive a money loan

is this correct?

If So...
would she still show any consumables purchased for her company (with the loaned money), as a business expense on her books?

[bd6759]

Of course she would. Its the same as buying consumables with an overdrawn bank account.

[xauxag]

many thx