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HMRC internal manual

Company Taxation Manual

Close companies: loans to participators: release or writing-off of loan or advance

ITTOIA05/S415 to S421

A loan or advance that is assessable under Section 455 (CTM61510), may be wholly or partly released or written off. From 6 April 1999 the company will get relief under CTA10/S458. ITTOIA05/S415 will then apply.

For loans made up to and including 19 March 2013, which are subsequently written off, the person to whom the loan or advance was made will have the amount released or written off included in his or her total income. This amount is treated as net income received after deduction of tax at the dividend ordinary rate. This notional tax is not repayable.

Where loans made on or after 20 March 2013 are written off or released, then in cases not involving loans to partnerships the same provisions will apply as in the preceding paragraph. However, where the loan was made to a partnership the amount written off will be treated as income of all of the partners who are individuals, and where more than one partner is liable the amount should be apportioned between them in a just and reasonable manner ITTOIA05/S417 (1A). This change was necessary because in a partnership case it is possible that some of the partners are companies.


A loan of £100,000 is made after 20 March 2013 by close company X to a partnership. The partnership has 4 partners, individuals A, B, C, and the company, X. A and B are participators in X. The loan is chargeable under CTA10/S455 (1) (c), as one or more partners who are individuals are participators in the company making the loan. The loan is subsequently written off. There are 3 individual partners. In the absence of any facts which might determine some other just apportionment, each of the 3 individuals, A, B and C will be chargeable under ITTOIA05/S415 on 33.3% of the loan written off.

As long as the company was a close company at the time of making the loan etc, this treatment is followed even if the company is not a close company when the loan etc is released or written off.

Where the participator or associate is also an employee (or a relative of an employee), there is potentially also a charge under the loan write off provisions of the Employment Income Rules (ITEPA03/S188/9). Any amount chargeable under Section 415 is not also charged under those specific provisions (ITEPA03/S189), In addition, there may be a Class 1 NIC charge, see CTM61660.

If the company claims a deduction from its profits (as a loan relationship or other deduction) in respect of an amount released or written off before 24 March 2010, the claim should be denied. There are various grounds for denying the relief, depending on the specific facts:

  • is it a distribution (a payment out of the assets of the company in respect of shares)? If so, no CT deduction will be due (CTA09/S1305)
  • is it a repayment rather than a release ie where it has been waived in lieu of remuneration or a dividend? That is effectively a repayment by set off and it will be taxed either as a dividend or as remuneration
  • is it remuneration? If so, a deduction may be due from profits but PAYE/NICs will apply to the payment
  • Can it otherwise be denied relief under the Loan Relationship legislation, for example because it is not an arms length transaction?

If the release or write off takes place on or after 24 March 2010, CTA09/S321A will apply to deny a Loan Relationship deduction.