Sarah Bradford highlights the forthcoming increase to the rate at which section 455 tax is charged on outstanding ‘loans to participators’ and examines the implications of the rise.
Loans to director shareholders are a common occurrence in family and personal companies. However, to prevent directors having the use of the money indefinitely without paying any tax, provisions exist which levy a tax charge (under CTA 2010, s 455) on the company where the loan is outstanding on the date for which the corporation tax for the period in which the loan is made is due.
Nature of the section 455 tax charge
The charge applies in respect of outstanding loans to participators in a close company. Broadly, a ‘close’ company is one that is under the control of five or fewer participators. A ‘participator’ is usually a shareholder in the company.