Invest in your own business with a Director’s Loan ISA

Cash for payroll? PAYE? Equipment? Repairs? When a small business needs cash quickly, it’s often the business director and their friends and family that help them to top up the business account using their own funds. They do this all without realising they can use the Innovative Finance ISA wrapper for tax-free interest. This is where can help.

By formalising your Director’s Loan, you can use your annual ISA allowance to earn tax-free interest when lending to your own business.

An ISA account allows you to earn tax-free returns on investments. Each tax year you have £20,000 that you can invest into an ISA of your choice.

The Director’s Loan ISA from is an Innovative Finance ISA. It includes all the same tax benefits as a standard ISA, but the difference from alternative providers is that your money may be loaned to your business.

Put simply, directors deposit funds into their Director’s Loan ISA, and these funds are then lent to their business. The business then repays the loan – with interest – back into the director’s ISA account. While the maximum amount that can be deposited into an ISA each year is capped at £20,000, any existing cash or shares ISAs can be transferred to us.

By lending to your business through your ISA wrapper, you don’t pay tax on the interest you receive.  Normally, if you lend to your business and charge interest, you pay Income Tax. Or if you declare a profit, you pay corporation tax, and then you pay dividend tax. Whereas with our ISA, the interest earnt on your interest income is all tax-free!

Friends and family who want to invest in your business can also receive tax-free interest on their investment.  This protects them should anything happen to you or the business, because without formalising the loan there is no legal basis to recover the loan.

The Director’s Loan ISA from is very flexible; you decide how much to lend to your business and you also set the interest rate at which you lend to your business; this can be anything up to 20%, in line with commercial lending.

There are plenty of benefits:

  • Formalised Director’s Loans
  • Formalised friends and family loans
  • Funding your own business is cheaper and quicker than borrowing from the bank
  • You’re not giving away any equity in the business
  • You decide how your company uses the money
  • Reduced tax, greater liquidity
  • Easy transfer in of existing ISAs
  • Invite your employees to ‘save as they earn’
  • Avoid angel investors asking you to ‘convert your loan to share capital’

There are 2 types of business loans available through

Interest-only Loans
– No fixed term
– Negotiable interest rates
– No arrangement fee
– Fees charged at 13.33% of monthly interest

Amortising Loans
– Fixed-term (up to 5 years)
– Choose any interest rate
– 3.25% arrangement fee
– No monthly fee

Tax treatment depends on the individual circumstances of each client and may be subject to change in future. Capital at risk. Not covered by FSCS.

Read more about the Director’s Loan ISA…

Search our blog...