| Close companies,
generally meaning family and owner managed
companies, are subject to special rules in
relation to loans or advances made to
participators and their associates.
Participators primarily means
shareholders. Where such loans are written
off or released an equivalent amount is
treated as a deemed net dividend for
income tax purposes.
This aspect remains unchanged but the
position of the company for corporation
tax is to be altered.
Under the corporation tax rules
governing corporate debt (the 'loan
relationships' rules) the company may be
entitled to a deduction against its tax
liability. A loan released or written off
will normally give rise to an expense
recognised in the company's accounts.
The release or write off of loans to
participators will not obtain a
corporation tax deduction when made on or
after Budget day.
HMRC is seeking to clarify the law so
that there is no tax advantage to a
shareholder/ director receiving a loan
from a company which then claims a
corporation tax deduction compared to the
shareholder/director receiving a dividend
(for which there is no corporation tax
deduction for the company).
Please do get in touch if you would
like further advice in this area.
Internet link:
Draft legislation |
