TAX CHARGE ON TAKING A LOAN FROM A CLOSE COMPANY


I touched on this in last month’s blog, and now we have more flesh on the bone so we can advise you on how to avoid the new tightening-up of popular arrangements which previously succeeded in avoiding any tax charge on a loan simply by making sure the loan is repaid within 9 months of the end of the company’s accounting period.

If at least £15,000 is outstanding by a participator to the close company immediately before a repayment and at that time there is an intention to re-borrow from the company, and that intention is carried out, the amount repaid is ignored and the result is a tax charge.

That could catch common arrangements where all withdrawals from the company are treated as debits to the director’s loan account and are then cleared before the 9 month limit by way of voting a dividend or salary.

That in itself should still work, as where a charge to income tax arises on the participator in respect of a reduction to the loan account by way of a dividend or salary that reduction is still taken into account.

However, the likely issue on this is that you will need to ensure correct paperwork is in place to identify the method of reducing the loan account both within the accounting period and the 9 months afterwards. That is something which often did not happen.

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