These rules are covered under Corporation Tax Act (CTA) 2010: Section 455 to 465
Section 455 will apply to loans to directors who are also shareholder (owning 5% or more) and to shareholders who are not directors. It does not apply to directors who are not shareholders.
|When was the loan repaid||Tax Position|
|Within 9 months of Year end (YE)||No Tax|
|After 9 months of YE||Tax @ 32.5%
Relief given in the YE when loan re-paid. Relief should be claimed within 4 years.
Tax avoidance measures:
Section 464C introduced w.e.f. 20 March 2013. Basically any window dressing is set aside. For more information see CTM61615.
Repaying loan via dividends/salary/bonus is not window dressing.
Points to be aware:
1) No non-business expenses posted as business expense.
2) All employment income has appropriate tax and NIC deducted.
3) If DLA balance anytime during the year over £10k. It will be treated as beneficial loan and showed by reported in P11D and NIC Class 1A paid.
Please note this limit does not apply to Sec 455 charge.
To avoid this , one can issue interim dividends to ensure loan balance does not go over £10k anytime during the year.