Posted on 13th June 2017 at 21:47
You or your company may have to pay tax if you take a director’s loan.
s455 tax: Clause 46 FINANCE (No 2) BILL 2016 : Loans to participators etc: rate of tax Summary 1.
This clause specifically links the rates of tax charged by section 455 and section 464A Corporation Tax Act 2010 (CTA 2010) on loans or benefits conferred under arrangements made by close companies to their participators to the upper dividend rate.
This increases the rate of tax charged by both sections from 25% to 32.5% from 6 April 2016.
The loans to participator rules charge tax on a close company (a company controlled by 5 or fewer participators - broadly shareholders) where it makes a loan or advance, or confers a benefit on a participator.
The rules exist to deter extractions of value from close companies where those extractions are not subject to relevant personal taxes. If a loan or benefit is subsequently repaid to the company then the charge on the company is repaid.
The tax rate mirrors the dividend upper rate. To ensure this remains the case, given changes to dividend taxation, the rate is being specifically linked to the dividend upper rate. As dividend tax rates are increasing from April 2016, the loans to participators rates will therefore also increase. The new rates will ensure that section 455 and section 464A continue to meet their policy objective of deterring close companies from making loans or other arrangements which have the effect of minimizing the income tax burden of individuals.
If you don’t repay the loan within 9 months of the end of your Corporation Tax accounting period, use form CT600A when you prepare your Company Tax Return to show the amount owed at the end of the accounting period and pay s455 tax on the loan.
If the loan is ‘written off’ or ‘released’ (not repaid), your company must deduct Class 1 National Insurance through the company’s payroll. You will pay Income Tax on the loan through your Self-Assessment tax return
Additional tax responsibilities may arise if:
● the loan was more than £10,000 (£5,000 in 2013-14) - treat the loan as a ‘benefit in kind’. Your company must report it on form P11D and pay Class 1A National Insurance on the value of the benefit.
● You paid your company interest on the loan below the official rate - treat the discounted interest as a ‘benefit in kind’ and report in on form P11D.
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