Loans to participators: further proposals for 2014

Finance Bill 2013 introduced changes to the “s455” regime. These are the rules (which have been around since 1965) under which a close company making a loan to a shareholder may be required to deposit with HMRC an amount equal to 25% of the loan. Broadly, FB2013 extends the scope of the law to cover loans made to certain partnerships and trusts and tightens up on the rules for “bed and breakfasting” repayments.

Quite separately, a Consultation Document has now been published in which HMRC set out their preferred options for more fundamental reform of the taxation of shareholder loans. (One has to ask why, if the entire system is thought to be in need of re-working, anyone thought it was worth fiddling about at the margins in FB2013, but let’s leave that question hanging).

HMRC don’t think that the current arrangements adequately meet the policy objective of “deterring close companies from transferring value to their participators in ways which are not chargeable to income tax or National Insurance Contributions as remuneration or dividends”. One option put forward is to maintain the present framework but simply to increase the rate from 25% to perhaps 40%; another is to replace the “repayable deposit” with a non-repayable annual charge in respect of loans outstanding at the year end. How such a charge would interact with the existing “benefit in kind” charge on loans to directors and employees is left open for consideration.

Consultation is open until 2 October and it is proposed that any reformed regime would apply to loans and other extractions in value occurring from April 2014. The Consultation Document expressly confirms that “Subject to appropriate transitional provisions, any loans, advances or arrangements which exist before the new regime has effect would continue to be treated under the current regime.”

Clients who have currently taken loans from their company or are contemplating doing so may therefore wish to contact their usual engagement partner to discuss what further action may be appropriate in the light of the Consultation Document.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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