Loans to Participators – What Company Shareholders Need to Know

Directors and shareholders of close companies should be aware of the tax implications that can arise when borrowing money from their company.

Where a close company makes a loan to a participator - typically a shareholder - and that loan remains outstanding at the end of the accounting period, the company may become liable to an additional corporation tax charge under Section 455 of the Corporation Tax Act 2010.

Increase in the Section 455 Tax Rate

For loans advanced on or after 6 April 2026, the Section 455 tax charge has increased to 35.75%, up from the previous rate of 33.75%.

This charge is designed to discourage shareholders from extracting funds from a company in the form of long-term loans rather than salary or dividends.

When Does the Tax Charge Apply?

The charge applies where a loan to a participator remains unpaid more than nine months after the end of the company’s accounting period.

For example:

• If a company’s year end is 31 March 2027, any outstanding participator loans must generally be repaid by 1 January 2028 to avoid the charge.
  

If the loan is not repaid within this timeframe, the company must pay the additional corporation tax as part of its corporation tax liability.

Can the Tax Be Reclaimed?

Yes. Relief from the Section 455 charge can be claimed where the loan is:

• Repaid

• Released

• Written off
  

However, this relief is only available once the repayment or release has actually taken place.

Importantly, HMRC does not allow claims for anticipated future repayments. This means businesses cannot claim relief simply because they intend to repay the loan at a later date.

Why Timing Matters

Company shareholders and directors should carefully monitor outstanding loan balances and repayment dates, particularly before corporation tax returns are submitted.

If a participator loan is repaid after the company tax return has already been filed, an amended corporation tax return may be required in order to reclaim the Section 455 tax.

How SJC Chartered Accountants Can Help

At SJC Chartered Accountants, we help directors and shareholders manage participator loan accounts efficiently and remain compliant with HMRC requirements.

Our team can assist with:

• Reviewing director and shareholder loan accounts

• Advising on Section 455 tax exposure

• Planning repayments efficiently

• Preparing amended corporation tax returns where necessary

• Advising on tax-efficient remuneration strategies
  

If you are unsure whether your company could be affected by the Section 455 rules, speak to the team at SJC Chartered Accountants for tailored advice.