Kirkpatrick & Hopes - Succession Planning Accountants

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Tax charge on taking a loan from a close company

I touched on this in my blog post of 5  June. We now have more flesh on the bone, so we can advise you on how to avoid the new tightening-up of popular arrangements that 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 because, 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, you need to ensure that the correct paperwork is in place to identify the method of reducing the loan account both within the accounting period and in the 9 months afterwards. This is something that often did not happen.

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