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Back to basics: tax on loans to participators

Paul Townson and Chris Holmes (BDO) provide a back to basics guide and highlight some points to watch in practice.

Why tax a loan from a company?

To the amateur and the enthusiastic trainee it sounds like a great tax wheeze: build up wealth in your own company (taxed at 19% currently) and lend it to yourself indefinitely thereby putting off the day when you subject yourself to income tax on the extraction.

HMRC has long been aware of this ploy and it introduced anti-avoidance legislation in as early as 1965. Indeed the name an adviser instinctively attaches to the resulting law (‘s 286 charge’ ‘s 419 charge’ or ‘s 455 charge’) is a reliable indicator of the adviser’s age.

The solution (currently found at CTA 2010 s 455) is broadly to treat such loans as subject to tax at an...

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