Introduction to this document

Flow chart - company loans to participators

Where a company advances money or confers a benefit directly or indirectly to an individual who owns or has a say in controlling the company it must pay a tax charge unless the arrangement is covered by an exemption or exception.

Flow chart

The following flow chart will help you decide if your company needs to report a loan to a participator to HMRC

Definitions for the flow chart:

  • The tax charge - the special tax, also called the s.455 charge, equal to 32.5% of the taxable amount
  • A close company - any UK-resident company which is controlled by five or fewer participators, or any number of participators who are directors.
  • A participator - a person who has a share or interest in the capital or income of the company. This includes the right to:
    • secure that income and/or assets are applied for their benefit; or
    • participate in any distributions.

Loan creditors with a beneficial interest in the debt (excluding commercial and business loans) count as having an interest in the company for these purposes.

  • Associates - for most tax purposes means persons who are:
    • relatives which are:
      • a husband, wife, or civil partner
      • parents and remoter forebears
      • children and remoter issue, e.g. grandchildren; and
      • siblings.
    • partners in any partnership
    • trustees of a trust the person is involved with; and
    • the personal representatives of a deceased person if the person has an interest in the estate
  • Loan - an advance of money or a benefit with monetary value.