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Consultation on tax charge on loans to shareholders

HMRC is taking an increasing interest in private company loans to shareholders.  The law was tightened in the Finance Act and a new consultation is now under way.  In HMRC’s views the current law is not acting as sufficient deterrent to people taking loans rather than income – as evidence, HMRC states that in 2011 the total of such loans was over £1bn.

The new consultation document proposes four options to improve the regime, as follows:

  1. Keep the current regime as it currently stands.
  2. Keep the current regime but increase the tax charge, possibly from 25% to 40%;
  3. Change the regime so that the tax charge is not repayable when the loan is repaid, released or written off.  If this course is taken the tax rate would be reduced to, say, 5%.  However, in this circumstance there would still be no tax liability provided the loan was repaid with 9 months of the year end.
  4. Change the regime so that the tax charge is not repayable but based on the average loan outstanding over the accounting period.

The consultation is due to finish on 2 October with a view to any changes being included in the Finance Bill 2014 so that the new rules apply to relevant extractions of value which occur from April 2014.

 

 

Date: 1st August, 2013
Author: Cathy Corns

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