Budget 2016 - Loans to participators

24th March 2016

Currently, loans or benefits conferred by close companies to participators are subject to a tax charge which is calculated at a rate of 25% of the loan.

The amount of the loan upon which this charge is calculated is the lower of the amount outstanding on:-

  • ·         The last day of the chargeable accounting period
  • ·         The normal due date for tax payment, being 9 months and 1 day after the end of the relevant accounting period.

As of 6 April 2016 however, the tax will be calculated at an increased rate of 32.5%.

The idea behind this is to keep the rate of tax in line with the higher rate of tax on dividend income which is also being increased to 32.5% with effect from 6 April 2016.

It should be noted that where accounting periods straddle 6 April 2016, different rates will be applied to separate loans made or benefits conferred before and after 6 April 2016.

The rules regarding the amount of the loan subject to the tax and when the tax becomes repayable will remain the same.

In the main, this change will impact incorporated owner managed businesses.  


Fiona Cross