Corporation Tax: rate of tax for the loans to participators charge
Published 16 March 2016
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This publication is available at https://www.gov.uk/government/publications/corporation-tax-rate-of-tax-for-the-loans-to-participators-charge/corporation-tax-rate-of-tax-for-the-loans-to-participators-charge
Who is likely to be affected
Close companies which make loans to their participators or make other arrangements through which participators extract value.
General description of the measure
The rate of tax charged on loans to participators and other arrangements (currently 25%) is being specifically linked to the dividend upper rate, which will be 32.5% from 6 April 2016.
Policy objective
The measure will ensure that the rate of tax chargeable under the loans to participator rules continues to mirror the dividend upper rate, following the changes to dividend taxation from April 2016, and will mean an increase in the rate from 25% to 32.5%. This will ensure that the rules continue to prevent individuals gaining an unfair tax advantage by taking loans (or making other arrangements to extract value) from their companies rather than remuneration or dividends.
Background to the measure
Following the announcement of changes to dividend taxation at Summer Budget 2015, a consequential change to the loans to participator rates maintains their anti-avoidance purpose.
Detailed proposal
Operative date
The new rates will apply to loans made and benefits conferred by close companies on or after 6 April 2016. For accounting periods which straddle 6 April 2016 different rates will be applied to separate loans made or benefits conferred before, and on or after, 6 April 2016.
Current law
Current law is contained in chapters 3 and 3A of Part 10 (specifically section 455 and section 464A) of Corporation Tax Act 2010.
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to link the rates of tax chargeable in sections 455 and 464A to the dividend upper rate. It will mean an increase in the rates from 25% to 32.5% for all relevant loans made or benefits conferred by close companies on or after 6 April 2016.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| +15 | +80 | +80 | +70 | +65 |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget responsibility. More details can be found in the policy costing document published alongside Budget 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The costing also allows for behavioural responses by the groups affected as they seek to mitigate the impact of the new rate.
Impact on individuals, households and families
There is no impact on individuals because the change affects companies only. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure is not expected to have an equality impact on groups of people sharing any protected characteristic.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on businesses administrative burdens but the costs of making loans to participators will increase. Business affected by the rate change will incur a negligible one-off cost to update their systems. There are not expected to be any additional on-going costs. The measure is not expected to have any impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
HMRC will have to make changes to IT systems to implement this change, at an estimated cost of £150,000.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be kept under review through monitoring information on the tax returns and associated documentation of affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Lorraine Coster on Telephone: 03000 585676 or email: lorraine.coster@hmrc.gsi.gov.uk.