If one company has spare cash and another needs funding, an intercompany loan may be worth considering. But the money belongs to the lending company, and moving it requires more than a bank transfer.
Our original Advent image introduces company-to-company lending. This expanded guide corrects the earlier suggestion that such arrangements have no tax consequences. The accounting, ownership and purpose of the loan all matter.
What is an intercompany loan?
It is a loan from one company to another. The lender records money owed to it; the borrower records an obligation to repay. That is different from a director taking money personally and investing it elsewhere.
For example, a trading company might consider lending to another company undertaking a property project. Before proceeding, the directors need to understand both companies’ circumstances, the repayment plan and the risks to the trading business.
Why is it not automatically tax-free?
Companies’ lending arrangements fall within the corporation tax loan relationship rules. Interest and other accounting entries can have tax consequences, and connected-company arrangements need particular care. Loans involving individuals or routes through other entities may raise additional issues.
It is therefore unsafe to compare an intercompany loan with a personal dividend using a single assumed tax rate. The loan does not turn company money into the director’s personal money.
What should the agreement cover?
- The lender, borrower and amount advanced.
- The business purpose and intended use of the funds.
- Repayment dates and any interest terms.
- What happens if repayment is delayed.
- Any security and the approval process.
The terms should reflect the actual arrangement. Documenting a loan after a dispute or financial difficulty has arisen is much harder than agreeing it before money moves.
Protect the lending company’s cash flow
Cash that looks spare today may already be needed for corporation tax, VAT, wages or suppliers. Build a forecast showing what the lender will need over the coming months and what happens if the borrower cannot repay on time.
Keep the two companies’ records separate and reconcile the loan balances in both sets of accounts. A mismatch can conceal missing transfers, unrecorded interest or a misunderstanding about repayment.
Questions to discuss with your accountant
Who owns and controls each company? Does the loan have a genuine commercial purpose? Can the lender afford the risk? Are the accounting and tax treatments clear? Legal advice may also be needed on agreements, directors’ duties and security.
Digivolve can help you review the accounting and cash-flow implications before committing funds. Explore our bookkeeping support or book a consultation.
Reviewed 2 October 2026. General guidance, not approval of a particular structure. Source: HMRC loan relationships guidance.