Loans to participators

A close company may make a loan to a participator or associate of a participator. Where this happens, the company must pay tax on the amount loaned, but can get the tax back when the loan is repaid.

Normally, the tax repayment has to be claimed separately and can’t be included on the return form.

The payment is due nine months and one day after the end of the accounting period in which the loan is made. If the loan is repaid to the company or otherwise discharged before this due payment date, then no payment is required.

A close company is one that is under the control of five or fewer participants or any number of participants who are directors.

Tax Rate

Loans made on or after 6 April 2016 are taxed at 32.5% (to mirror the new dividend upper rate). The rate on loans made on or before 5 April 2016 is 25%. Repayment of loans will generate a repayment of tax at the same rate as was charged when the loan was made.

For accounting periods which straddle 6 April 2016, different rates will be applied to loans made before and those made on or after 6 April 2016.

Completing Loans to Participators