Jennifer Adams looks at the anti-avoidance rules applicable to ‘participators’ borrowing from a family company.
A method by which cash can be extracted from a family company is to borrow from that company. The benefit for the borrower is a short-term loan, interest-free, with no completion of application forms and no refusal by a bank.
However, care is needed to ensure that the loan or advance does not fall foul of the rules for ‘loans to participators’ if it is not repaid within nine months after the end of the company's accounting period.
Usually, the borrower will be a director or shareholder of the company. However, the rules apply to anyone deemed to be a 'participator,' i.e., anyone (or their associate) with a financial interest in the company (excluding a bank operating in the ordinary course of its business, or trade creditors of the company).
