An often overlooked aspect is that company loans can be extended not only to directors but also to associates or participators. As outlined in HMRC’s Company Taxation Manual (CTM60150). This means loans can be provided to a director’s spouse, parent, grandparent ), child, grandchild (termed ‘remoter issue’), sibling, or partner. For the penal ‘loans to participators’ tax rules under CTA 2010, s 455, there must be a blood relationship for them to apply, for instance, there may be no tax implications for a brother-in-law provided his spouse isn’t a shareholder in the company, and he isn’t the spouse’s sibling.
To avoid falling under the section 455 tax rules, the loan must be repaid within nine months and one day after the company’s accounting year-end. Failure to do so will result in the company facing an additional tax charge equivalent to the dividend upper rate (39.35%). Absent this charge, a director could theoretically borrow from the company indefinitely without facing any tax implications.
