Loans to participators are loans or advance of money made to an individual who is a participator in the company or a trust which is a participator or any partnership whose membership includes a participator in a close company. This document discusses the rules regarding payment of tax and making claims for repayment of tax on loans to participators. It also covers rules on excluded loans and reporting requirements.

Loans to participators Where the following conditions apply:
  • close company
  • otherwise than in the ordinary course of a business carried on by it which includes the lending of money
  • makes any loan or advances any money to
    • an individual who is a 'participator' in the company or is an 'associate' of a participator
    • a trust which a participator or their associate is trustee or potential beneficiary, or
    • any partnership whose membership includes a participator or their associate

The company must pay tax on the amount of the loan or advance. 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 ob-tained from the difference between the rate of tax on loans and benefits etc to participators, and the rate of tax on dividends. CTA 2010, s 455

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. CTA 2010, s 455(2)

Anti-avoidance legislation applies to prevent abuse of the rules. For example, structures involving a loan or advance made via an intermediary (such as a partnership with a corporate member or a trust) are also in-cluded. Extractions of value which are not strictly loans, and which would otherwise be untaxed, are also caught. See HMRC's technical note for further information. CTA 2010, ss 455(1), 464A, 464B

Loans to Scottish partnerships, although considered separate legal entities, are included in the rules. See the Types of partnership and types of partner guidance note. However, HMRC will look at whether it is a genuine loan to the partnership or is actually being made to a partner. If the latter, it may seek to apply sec-tion 455 as it applies on an indirect loan. CTM61515; CTM61520

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