David Southern QC (Temple Tax Chambers) considers the important distinction between loans to participators and loans by participators.
The rule
If a close company makes a loan or advance to a participator this will be treated as a concealed distribution for tax purposes. There are two consequences. The close company is liable to a temporary corporation tax charge at 32.5% (CTA 2010 s 455(2)). If the loan is repaid to or released or written off by the company the tax charge is cancelled (s 458(2)). No loan relationship debit can be claimed (CTA 2009 s 321A). In cases where the loan is released or written off the participator is treated as having been paid a dividend (ITTOIA 2005 ss 415–417).
‘Loan or advance’ carries an extended meaning and means any transaction giving rise to a debt owed by the participator to the close company.
This...
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David Southern QC (Temple Tax Chambers) considers the important distinction between loans to participators and loans by participators.
The rule
If a close company makes a loan or advance to a participator this will be treated as a concealed distribution for tax purposes. There are two consequences. The close company is liable to a temporary corporation tax charge at 32.5% (CTA 2010 s 455(2)). If the loan is repaid to or released or written off by the company the tax charge is cancelled (s 458(2)). No loan relationship debit can be claimed (CTA 2009 s 321A). In cases where the loan is released or written off the participator is treated as having been paid a dividend (ITTOIA 2005 ss 415–417).
‘Loan or advance’ carries an extended meaning and means any transaction giving rise to a debt owed by the participator to the close company.
This...
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.jpg?sfvrsn=335a554c_0 "300 x 250 (MPU)")