If you are self-employed or director of a company then there usually comes a time when you transfer some of your own hard-earned money from your personal bank account into your business bank account. However if you do this incorrectly you will have to pay tax on that amount because HMRC simply see it as ‘income’ and you will be liable to pay 20% tax on that amount! So without further adieu here is how you should transfer money from a personal bank account into a business bank account without paying tax.
As a Sole-Trader
If you operate your business as a sole-trader or similar (anything but a company director!) then you simply need to ensure you reference the transfer as ‘Capital Employed’ and then ensure you log this in the same manner when it comes time to complete your tax return. This form of income is tax-free and a completely legal method of transferring personal funds to your business without paying tax on it because it’s not a form of taxable income.
As a Company Director
If you are a company director then you need to reference the transfer as a ‘loan’ to the company. This doesn’t need to be paid back, it’s purely a word used to ensure you don’t pay tax on this amount of money since it isn’t a form of taxable income. Again when it comes time to complete your tax return just ensure you log this income as a ‘loan’ and it wont be taxed.
And it’s as simple as that! If you were to simply transfer the money from your personal account to your business account then the income would be subject to tax in HMRC’s eyes. But as long as you log and file the transfer as either ‘Capital Employed’ or a ‘Loan’ then you’ll be safe from paying any tax on that amount.