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The headlines are full of new and extended tax reliefs for SMEs and employee owned businesses, but one area that seems to have been passed over is the further clamping down on loans provided by close companies to their participators. Broadly, a company is "close" if it is controlled by 5 or fewer persons, and a participator is any shareholder or provider of loan finance (which is extended to include most members of their family). If a loan is provided by the company to a participator then a tax charge arises on the company - the "section 455 charge".

The changes

HMRC have identified a perceived abuse of the regulations and have introduced a number of new rules to extend the scenarios where a loan will be subject to the section 455 charge. From 20 March, a section 455 charge will now arise when the loan is:

  • provided via an intermediary, for example where the company and participator are in partnership together,
  • made via a trust and the trust is either itself a participator in the company or the trustees are associated with the participator, or
  • repaid prior the nine month deadline, only for a new loan to be provided shortly after.

The new rules also extend to include within the section 455 charge the provision of value other than by way of loan. This might include, for example, where the company and participator are in partnership and the profits are allocated to the company, but the company does not draw them down and instead the participator draws the profit from the partnership.


These changes are further examples of the complexity of the UK tax regime and continue with the usual sticking plaster approach of fixing identified holes in the regulations. These changes will catch many people who have structured their business affairs to include a partnership or trust. If you are concerned that the changes may affect you and would like to discuss the regulations please contact us.