‘No change’ on company loan arrangements

The government has decided against making changes to the tax rules relating to loans made by companies to directors and shareholders.

The move was announced on 10 December in HM Revenue & Customs’ (HMRC) response to a consultation carried out last summer.

The consultation followed a Budget 2013 pledge to consult on options to reform tax charges on loans from close companies to participators. Participators are usually shareholders, who could also be a director, and a close company is one with five or fewer participators or any number if they are directors.

In the consultation, views were sought on four options, including maintaining the current regime and increasing the existing 25 per cent tax rate but retaining the structure and operation of the existing regime.

In its response, HMRC said: “The government does not intend to undertake any fundamental reforms to the regime or to change its operational structure.”

But it added: “HMRC will continue to engage with interested parties to consider in more detail suggestions and concerns put forward during consultation with the potential for smaller adjustments to the regime within the existing framework.”

The consultation followed other changes relating to loans to participators announced in the 2013 Budget, which were implemented in the Finance Act 2013 with effect from 20 March 2013.

Prior to that date, a company that did not clear the outstanding balance of  a loan within nine months of the year end faced paying tax at 25 per cent – often known as s455 tax – on the amount outstanding.

The Finance Act 2013 introduced provisions designed to prevent an arrangement, known as “bed and breakfasting”, involving loans being repaid before the nine month cut-off point and then redrawn shortly afterwards, avoiding the s455 tax charge.

Link: HMRC guidance