Moving money between companies —
tax implications

If you own more than one limited company — perhaps a trading company and a separate property investment company, or a growing business alongside a new venture — moving surplus cash from one to the other is not as simple as an internal bank transfer. Each company is a separate legal entity, and HMRC treats money moving between them as a transaction that needs a proper tax and accounting treatment, even where no interest is charged and the companies are under common ownership.

This post covers the most common way this is done — the intercompany loan — how it is taxed, the rules you need to follow, and the traps that catch directors out.

Why you can't just "move" money between companies

Because each limited company is a distinct legal person, cash cannot simply pass between them without a transaction being recorded. There are broadly three routes: a dividend from one company up to a shared shareholder and back down into the other (inefficient and rarely used for this purpose), a management charge for genuine services provided between the companies, or — by far the most common — an intercompany loan.

An intercompany loan is exactly what it sounds like: one company lends money to another, with the loan recorded as a liability in the borrowing company's accounts and an asset in the lending company's accounts. It is a normal and widely used method of moving cash within a group of connected companies for legitimate business purposes — funding a new venture, financing a property purchase, or providing working capital.

The loan relationship rules

HMRC governs company-to-company lending through the loan relationship rules, part of the Corporation Tax framework. Under these rules:

• The loan itself — the principal amount — is not taxable when it is made or repaid
• Only interest charged on the loan has tax consequences
• Interest is taxed on an accruals basis — when it is recorded in the accounts, not necessarily when it is physically paid
• The lending company pays Corporation Tax on interest received as taxable income
• The borrowing company can generally deduct interest paid as a business expense, reducing its taxable profit — subject to normal Corporation Tax restrictions

Because interest is the only element that creates a tax event, and because moving it from one connected company to another simply shifts a Corporation Tax liability from the borrower to the lender without any real overall benefit, many intercompany loans between connected UK companies are made interest-free. An interest-free loan can still qualify as a valid loan relationship under HMRC's rules — there is no requirement to charge interest between connected companies for the arrangement to be recognised, unlike loans to unconnected third parties, which may need to reflect a commercial, arm's length rate.

The associated companies effect on Corporation Tax

If you own more than one company, they will very likely be treated as associated companies for Corporation Tax purposes — broadly, where the same person or persons control both. This has a direct impact independent of any lending between them: the £50,000 and £250,000 Corporation Tax thresholds are divided by the number of associated companies.

So if you own two companies, each one's small profits rate threshold drops from £50,000 to £25,000, and the main rate threshold drops from £250,000 to £125,000. This applies regardless of whether the companies lend to each other — simply owning more than one company changes the tax position of both. Some dormant companies and passive holding companies whose only activity is holding shares and receiving dividends may be excluded from the count, but this needs to be assessed carefully rather than assumed.

Why directors set up intercompany loans

• Funding a new venture without external finance. A profitable, cash-rich company can lend to a newer connected company that needs working capital, avoiding the cost and process of a bank loan.
• Property investment, kept separate from trading risk. A common structure: a trading company lends surplus cash to a separate investment company, which then purchases property in its own name. This ring-fences the property from any creditor claims if the trading company runs into financial difficulty — a genuine commercial reason many advisers recommend keeping trading and property activities in separate entities.
• Group cash management. Within a group structure, intercompany loans allow surplus cash in one part of the business to fund activity elsewhere without the friction of dividending cash up and back down through the group.

What happens if the loan is written off

Sometimes an intercompany loan is never repaid — perhaps the borrowing company's venture did not work out, or the group decides to formally release the debt. Writing off an intercompany loan has tax consequences that depend on the specific circumstances and the relationship between the companies:

• Where companies are "connected" for loan relationship purposes (broadly, under common 75% control), the release of a loan is often tax-neutral — the lending company generally cannot claim a tax deduction for the write-off, and the borrowing company is generally not taxed on the release of the debt
• Where the connection test is not met, the treatment can differ — the write-off may be a taxable credit for the borrower and/or a deductible loss for the lender
• Directors' loans (money owed personally by a director to their company, rather than between two companies) are subject to entirely different rules — including the Section 455 tax charge — and should not be confused with intercompany loans

Given how easily these situations can be misclassified, and the meaningful tax difference between a "connected" write-off and an unconnected one, this is an area where getting professional advice before writing off a balance — rather than after — makes a real difference.

Transfer pricing — a developing area

Transfer pricing rules require that transactions between connected companies — including loans — reflect arm's length terms, so that taxable profits are not artificially shifted between entities. Historically, UK-to-UK transfer pricing between connected companies has had limited practical impact for most small groups, since both entities pay UK Corporation Tax and there is little incentive to manipulate pricing between them.

This is an area of active legislative change. Reforms proposed in the Finance Bill 2026, intended to take effect for accounting periods commencing on or after 1 January 2026, would generally disapply UK-to-UK transfer pricing rules for most connected domestic transactions, subject to limited exceptions designed to prevent tax arbitrage. If you hold companies with any cross-border element — an overseas parent, subsidiary, or connected party — transfer pricing considerations remain far more significant and this area should be reviewed with a specialist.

Getting the basics right

• Document the loan properly — a simple loan agreement setting out the amount, whether interest applies, and repayment terms, even between wholly-owned connected companies
• Record it correctly in both companies' accounts — as a liability in the borrower and an asset in the lender, reflected consistently in both sets of statutory accounts
• Understand the associated companies impact on your Corporation Tax thresholds before assuming the small profits rate applies in full to each company
• Take advice before writing off any balance — the tax treatment depends on specific facts that are easy to get wrong

This article is for general information purposes and does not constitute tax advice. Intercompany lending, loan relationship rules, and transfer pricing are complex areas of law that depend heavily on individual circumstances. Always speak to a qualified accountant before entering into or writing off an intercompany loan.