Loans to participators

Introduction

A close company may make a loan to a participator or associate of a participator. Where this happens or the close company has been party to tax avoidance arrangements under which a benefit is conferred on a participator or associate of a participator, the company must pay tax on the amount loaned or benefit conferred under arrangements but can get the tax back when the loan is repaid or, in the case of benefits conferred, return payments have been made.

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

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

The applicable rate on loans made and benefits conferred on or before 5 April 2016 is 25%. The rate on loans made and benefits conferred on or after 6 April 2016 is charged at the dividend upper rate (as specified in ITA 2007, s8(2)). The dividend upper rate is 32.5% for loans made and benefits conferred on or after 6 April 2016 and 33.75% for loans made and benefits conferred on or after 6 April 2022. Repayments of loans or, in the case of benefits conferred, return payments, will generate a repayment of tax at the same rate as was charged when the loan was made or benefit conferred.

For accounting periods which straddle 6 April 2016 or 6 April 2022, the applicable rate that is or will be applied to loans, further advances repayments, releases and write offs of such loans and benefits conferred, is that which applied when the loan is made or benefit conferred.

Adding or Amending Loans to Participators

To add or amend a loan to a participator, select Loans to participators on the main navigator. This opens Loans to Participators List, which lists all loans already entered in the software.

To amend an existing loan, highlight that loan on the list and click Edit. This will open Loan to Participators.

To add a new loan, click Add. This will open Loan to Participators.

The information required to complete these two pages is the same:

Loan details Enter the loan reference, the name of the loanee, a description of the loan, the amount advanced and the date of the loan in the appropriate fields.
Loan b/f: movements in period

If the date entered at Date loan advanced, in Loan details is before the start of the period, then the Loan amount advanced figure will appear in Loan b/f.

If any of the brought forward loan has been repaid, released or written off during this period, then enter those amounts by clicking on the figures alongside Total repaid or Total released or w/o.

Loan outstanding is calculated as Loan b/f, less any amounts repaid, released or written off.
Loan in period: movements in period

If the date entered at Date loan advanced is during the period, then the Loan amount advanced figure will appear in Loan advanced.

If there have been additional advances made to the loanee which are considered to be part of the same loan, enter these at Further advances. Where the further advance is made in a period straddling a rate change (i.e. 6 April 2016 or 6 April 2022) Further advances will change to Further advances before dd/mm/yyyy (the date the rate changes). If the field is disabled, that means you cannot have a further advance and a new loan record must be set up in accordance with the help tip displayed in such cases.

If any of the loan has been repaid, released or written off during this period, then enter those amounts by clicking on the figures alongside Total repaid or Total released or w/o.

Loan outstanding is calculated as the Loan advanced, plus Further advances, less any amounts repaid, released or written off.
Loan outstanding at end of period Summarises the total loan amounts outstanding, including both loans advanced during the period and loans brought forward.
Loans in period: movements after period

Alongside each of the following, click the figure to provide details of:

  • Current period loan amounts repaid within nine months of the end of the period.
  • Current period loan amounts released or written off with nine months of the end of the period.
  • Current period loan amounts repaid more than nine months from the end of the period, but in respect of which relief is due.
  • Current period loan amounts released or written off more than nine months from the end of the period, but in respect of which relief is due.
Net tax payable on loans Summarises the tax payment position relating to the loan, with net loans advanced being liable to Corporation Tax at 25%, for loans advanced before 6 April 2016. 32.5% for loans advanced on or after 6 April 2016 but before 6 April 2022 and at 33.75% for loans advanced on or after 6 April 2022.