Home > Tax Advice, Uncategorized > Tax Loophole Closed for Loans to Directors and Participators

Tax Loophole Closed for Loans to Directors and Participators

For several years HM Revenue & Customs (HMRC) have been concerned that directors and shareholders of companies, referred to as “close companies”€, have been able to avoid paying tax by abusing rules relating to loans made to directors, shareholders or other “participants”€ or indeed to their associates.

Typically this might involve a director or shareholder being given money against a “loan account”€ which later would be “€œpaid back”€ by being reclassified as salary and/or dividend as appropriate.

But there was evidence of widespread abuse where a loan would be repaid one day and then a new loan granted the next -€“ in effect providing tax-free income.

To prevent this form of tax avoidance, current rules state that

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