Loans to Directors - Tax Implications

Loans to Directors - Tax Implications

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Hi there. I am an accountant myself, but I work in financial services so my tax knowledge isn't up to scratch.

I had a query from one of my colleagues as to how loans from a private limited company to a director (also the main shareholder) are treated for tax purposes (corporation and income tax). From my studies I do recall there are a specific set of rules relating to this topic, but alas I can't remember.

In this particular case the loans from the company to the director are very substantial in that the amount loaned is equivalent to the entire share capital & reserves of the company. In addition, the interest charged on the loan is far lower than commercial rates or the official rate of interest. In my mind this loan is so substantial that in effect it is a distribution and would be taxed on the individual accordingly, but I would be grateful if someone whose tax knowledge is better than mine could advise as to the tax implications of this arrangement.

Many thanks in advance for your help.

Elaine

Elaine

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By User deleted
29th Nov 2006 22:02

s419 tax (at 25% of the loan o/s) needs to be added to the ct reurn for the relevant accounting period, unless the loan is repaid in full, or part, within 9m of the accounting period. subsequent repayments of the loan will result in a recoverable and, from experience, deduct it from the CT payable in the later accounting periods as HMRC like to hold on to it!

victor meldrew MAAT

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By User deleted
29th Nov 2006 12:53

Loans to Participators
Many thanks for this - your help is much appreciated.

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