HMRC has launched a consultation on the possible reform of close company loans to participators. The proposed changes will affect many companies. A close company is one controlled, directly or indirectly, by five or fewer participators (these are usually the shareholders), or by any number of directors. The current rule is that where a shareholder or director of a close company has a loan which remains outstanding to the company after 9 months following the end of the accounting period, the company must pay a temporary tax charge of 25% (known as “section 455 tax”). The tax will become repayable to the company 9 months after the accounting period in which the loan is repaid. Currently, there are no tax consequences to the company if the loan is repaid to within 9 months of the end of the accounting period, although an income tax charge may arise on the borrower under the taxable cheap loan rules.
The proposed changes detail four possible options, these being to:
The closing date for comments on the HMRC consultation document is 2 October 2013.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.