Ways to invest money into your business as a single director

Debt

When you structure the cash as a loan from a director to the company, it’s treated as debt. This is generally the most flexible option and you can document this with a very simple loan agreement. Debt is the most common arrangement that we come across.

Pros:

• Flexible cash extraction: Directors' Loans are easy to repay without there being a lot of admin. 
• Interest deductibility: If the Director chose to charge interest, interest is tax-deductible, reducing your profits (and any corporation tax payable). However, you do need to file CT61 forms if you charge interest.
• Downside protection: In some cases, if the company was in financial difficulty, you could write the loan off. This would likely count as a capital loss against personal capital gains.

Cons:

• CT61 forms for interest booking: If you decide to charge interest, the business is required to submit a CT61 form quarterly to HMRC and withhold tax at 20%. This can be reclaimed on your tax return if too much tax was paid but does add some administrative complexity.

Equity

Alternatively, you can inject money into a UK company as equity, where money is exchanged for new additional shares in the entity.

Pros:

• Lack of debt: The balance sheet of the UK subsidiary will not have any debt on the balance sheet which can be relevant for some counterparties (banks, employees, etc).
• Maintain ownership: If some other shareholders owned equity directly in the company, injecting money as equity would likely increase your ownership stake, voting rights & control of the company.
• Possible tax relief: For UK investors, equity investments can qualify for EIS (Enterprise Investment Scheme) or SEIS (Seed Enterprise Investment Scheme) tax relief if certain conditions are met (e.g. owning less than 30% of the company). These schemes can protect against losses, providing personal tax relief that reduces risk but you will need to seek advice to ensure that you will be eligible.

Cons:

• More admin: If the company is profitable and you want to withdraw the cash, you need to follow formal processes for issuing dividends which involve board meetings, issuing dividend vouchers and when shares are issued, you will have to file SH01s with Companies House.
• Profit requirement for dividends: Dividends can only be paid out of accumulated profits, so if the subsidiary is loss-making, it can be difficult for the parent entity to withdraw the cash.

Payment for Services

This is a less common route that startups take. A director could pay for the company's services. This would count as income for the business.

Pros:

• Higher UK revenue: The UK company will have higher revenues, which may be favourable in some circumstances.
• Low-ish initial admin: This can be as simple as sharing invoicing or a basic contract between the entities, which may need less documentation than other options.

Cons:

• Taxable as revenue: Any income received will be subject to normal taxes so the business will appear more profitable, and you may have to pay more corporation tax.
• No direct cash extraction: Money paid to the business as service revenue isn’t easily reversible or extractable. If you later want to take these funds out, it would typically need to be done through dividends or salary, both of which come with their own tax considerations.
• Potential VAT implications of revenue: Adding revenue from services may push the company over the VAT registration threshold, requiring you to register for VAT and charge VAT on applicable goods and services.