Loans to participators

Produced by Tolley
Loans to participators

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Loans to participators
  • Making of loans to participators
  • Loans or advances that may attract a close company charge
  • Excluded loans
  • Repayment of loans to participators
  • Waivers of loans to participators
  • Corporation tax treatment of loan waivers
  • Income tax treatment of loan waivers
  • NIC treatment of loan waivers
  • Reporting loans to participators
  • More...

This guidance note deals with the rules regarding payment of tax, and making claims for repayment of tax on loans to participators. For information on the definition of close companies and other relevant definitions, please see the Definition of a close company guidance note.

For a summary of tax implications of close company status, see the Implications of close company status guidance note.

Making of loans to participators

For loans or advances made on or after 6 April 2016 by a close company, a tax charge of 32.5% (25% prior to 2016/17) will apply if the loan was made otherwise than in the ordinary course of a business carried on by it, which includes the lending of money to any of the following:

  1. a person who is a ‘participator’ in the company or is an ‘associate’ of a participator

  2. a trust in which a participator or their associate is trustee or potential beneficiary, or

  3. an LLP or other partnership whose membership includes a participator or their associate ― this will catch, for instance, genuine commercial structures such as loans from related close companies to property development LLPs to fund new developments

The company must pay tax on the amount of the loan or advance that is outstanding nine months after the accounting period end in which it was made. The rate of tax is 32.5% for relevant loans made or benefits conferred by close companies on or after 6 April 2016, and 25% for loans made or benefits conferred before 6 April 2016. These rates aim to prevent an unfair tax advantage from being obtained from the difference between the rate of tax on loans and benefits etc to participators, and the rate of tax on dividends.

The tax is due from the company as if it were corporation tax chargeable for the accounting period in which the loan etc was made and is therefore due at the same time as the corporation tax is due.


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