Where a loan is repaid to the close company or the close company releases or writes off the debt, special rules apply, as follows.
Repayment of the loan
If the loan/advance is subsequently repaid after the tax return has been filed, any tax previously paid by the company will be refunded back to the company1. This is the case even where the loan is repaid after the company has been declared insolvent2.
Axel Ltd, a close company, makes a loan of £40,000 to Mr A, a participator, on 30 September 2016. Mr A repays the loan as follows:
30 September 2017 — Mr A repays £20,000
30 September 2018 — He repays a further £10,000
30 September 2019 — He repays the remaining £10,000
Axel Ltd has a 31 December accounting date. Under CTA 2010, s 455, it must pay £6,500 tax (32.5% of £20,000, being the lower of the amount of the loan outstanding on (a) 31 December 2016 or (b) the due date of 1 October 2017). This must be paid on the due date of 1 October 2017 (nine months and one day after the end of the chargeable accounting period).
Axel Ltd can then claim relief of £3,250 on 1 October 2019, and £3,250 on 1 October 2020.
Note: If the loan had been made before 6 April 2016, the rate of tax applying would be 25%.
Where the repayment falls on or after the date on which tax in respect to the loan is