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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Close companies: loans to participators: exclusion of certain loans

CTA10/S456(3) to (8)

These subsections exclude certain loans from the Section 455 charge.

Loans of up to £15,000 to employees who do not have a material interest

Where a close company makes a loan or advance for any purpose to a relevant person who is also a director or employee of the close company or of any associated company, (see CTM60210) that loan or advance is not within CTA10/S455 if all the following conditions are satisfied:

  • the amount of the loan in question plus the outstanding amounts of loans made to the borrower does not exceed £15,000 (Condition A), and
  • the borrower works full time for the close company or any of its associated companies (Condition B), and
  • the borrower does not have a material interest (see CTM61545) in the close company or any of its associated companies (Condition C)

When deciding whether the limit of an individual employee has been reached, do not take loans to the spouse into account.

Where both husband and wife are directors or employees, they will each be entitled to a separate limit of £15,000.

Cumulative loans total more than £15,000

Where a participator who does not have a material interest in the company receives small loans over several periods, the aggregate may eventually exceed the £15,000 limit for exemption. For example, a director may receive £5,000 in AP1, £2,000 in AP2 and then £10,000 in AP3. In isolation each of these would qualify for the exemption, but in aggregate he has received £17,000. The two earlier amounts continue to meet the requirements for the exemption and therefore remain outside the charge.

However, we do not just charge the excess of the aggregate over £15,000 (£2,000) under CTA10/S455 in AP3. Rather the full amount of the £10,000 loan in AP3 does not meet condition A (CTA10/S456 (4)). The S455 charge in AP3 is therefore on the full £10,000 loan in that period.

Borrowers that acquire a material interest

Where a loan made to a borrower remains wholly or partly outstanding when that borrower acquires a material interest or an existing interest is enlarged and becomes material (see CTM61545), the loan will not then be within the protection of CTA10/S456 (3) to (8) even if it is below £15,000.

You treat the company as if it had made a loan equal to the amount outstanding at the time the material interest is acquired, and tax should be assessed on the company in accordance with CTM61790. Thus, if a participator received a loan of, say, £12,000 in a period before he had a material interest, made some repayments and owed the company £7,700 on the date that he acquired a material interest, then there will be a charge under CTA10/S455 on the amount outstanding, i.e. £7,700.

Full time

A director or employee should be regarded as working full-time for a close company or any of its associated companies if he or she works for the close company and/or its associated companies not less than three-quarters of the normal working hours of the close company.

Special arrangements

A loan that is part of an arrangement which results in a participator or associate of a participator receiving payments or property transferred to them, or having their liabilities released or satisfied is deemed under CTA10/S459 (CTM61550 to CTM61555) to have been made to that participator, or associate of a participator, for the purpose of CTA10/S455 (1).

For example, a close company makes a loan to an employee who is not a participator. That employee then uses the loan to buy shares from an existing shareholder. The result is a ‘loan’ from the company to a participator.

The loan, however, may be exempted if the deemed borrower (that is, the existing shareholder in the company) can show that the deemed loan would satisfy CTA10/S456 (3) to (8) if it had been made to him directly.