The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The following scenarios are intended to illustrate how the various rules governing corporate debt will apply in a variety of real-world situations. The scenarios are intended to be more complex than the most simple situations but not uncommon.
For a general overview of corporate debt, including the loan relationships and derivatives regimes, see the Corporate debt ― overview guidance note.
When a close company makes a loan to a participator (whether or not the participator is also an employee or director), a tax charge can arise for the company.
Anti-avoidance provisions ensure that loans (and other extractions of value) made by a company to a participator via an intermediary also fall within this charge.
If such loan is subsequently waived or written off, the close company can reclaim the tax charge.
However, there is no debit for loan relationship purposes as a result of the write off, even though this may not be a connected parties relationship.
In addition, there could be income tax (and potentially NIC) implications for the participator if they are an individual.
On the waiver or write off of the loan, a savings or investment income tax charge arises for the participator. If the participator is also an employee or director the amount written off will be treated as earnings and subject to PAYE, with both income tax and class 1 NIC due.
See the Loans to participators guidance note for a further discussion of such loans.
In order to control a company for the purpose of the connected person test in the loan relationship rules, it is necessary for a person to be able to secure that the company's affairs are conducted in accordance with their wishes. This can be through a shareholding or the possession of voting power (in the company or any other company) or by virtue of powers
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