Financing the company ― overview

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Financing the company ― overview
  • Loans
  • Bank loans and overdrafts
  • Shareholder loans
  • Fixed asset financing
  • Tax reliefs
  • Enterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS)
  • Venture capital trusts (VCT)
  • Corporate venturing scheme (CVS)
  • Government funding

Financing the company ― overview

How to raise sufficient finance to commence and continue operating is one of the most important considerations for most types of business.

There are some fairly obvious sources of financing, such as bank finance, however there are also several types of tax efficient financing available, such as the enterprise investment scheme (EIS) and venture capital trusts (VCT). Obtaining tax advice at an early stage to ensure that these reliefs are available can help attract and retain suitable investors. This guidance note explores some of the options available and the relevant tax considerations for each one.

Loans

Most businesses will have to take out a loan of some sort and the tax implications will differ depending on the terms of the loan and the identity of the lender. Generally, the loan relationships regime applies. See the Corporate debt ― overview guidance note and associated notes for information on the tax implications of corporate debt.

Bank loans and overdrafts

Interest arising on bank loans and overdrafts is usually allowable when it is accrued in the accounts. Certain costs of arranging loan finance are also allowable under the loan relationships rules. For further information, see the Taxation of loan relationships guidance note.

Shareholder loans

Late interest rules

If a company enters into a loan arrangement with an entity other than a bank, there may be additional tax implications. For example, loans between certain connected parties are subject to anti-avoidance provisions known as the ‘late interest’ rules. The relevant legislation is set out in CTA 2009, Part 5, Chapter 8. These rules most commonly apply where interest is paid to companies in a non-qualifying territory (broadly speaking, a ‘tax haven’) or to a participator of a close company. If the interest on this type of loan i

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