The tax rate on loans to participators is 33.75% of any loan balance still outstanding nine months and one day after the end of the accounting period in which the loan was made. The charge falls on the close company, not the borrower, under Section 455 of the Corporation Tax Act 2010.1Legislation.gov.uk. Corporation Tax Act 2010 – Section 455 The rate mirrors the higher rate of dividend tax and exists to stop owners extracting profits as “loans” while paying less tax than they would on dividends or salary.
How the Charge Is Calculated
Take the balance the participator still owes at the payment deadline and multiply by 33.75%. If a director owes the company £50,000 at that point, the company owes HMRC £16,875. That money is locked up until the borrower repays the loan and the company reclaims the tax.
The rate depends on when the loan was made, not when it becomes payable. Loans made on or after 6 April 2022 attract 33.75%. Loans made between 6 April 2016 and 5 April 2022 sit at 32.5%. Loans made before 6 April 2016 attract 25%.2GOV.UK. Company Taxation Manual – CTM61505 A company carrying older unrepaid balances uses the rate in force when each loan was originally made.
The charge does not apply to loans made in the ordinary course of a money-lending business.
Who Counts as a Participator and a Close Company
The rate only bites if the lender is a close company and the borrower is a participator or an associate of one. A close company is broadly one controlled by five or fewer participators, or by any number of participators who are all directors. It also covers companies where more than half the assets would go to five or fewer participators on a winding up.3GOV.UK. Company Taxation Manual – Close Companies General Broad Definition Most owner-managed limited companies in the UK are close companies.
A participator is anyone with a financial interest in the company: shareholders, loan creditors, and directors. Associates, meaning family members or business partners, are pulled in as well, so routing a loan through a spouse or relative does not sidestep the charge. The most common trigger in practice is an overdrawn director’s loan account, but any arrangement where the company effectively provides credit to a participator can bring Section 455 into play.
Payment Deadline and How to Avoid the Charge
The Section 455 tax falls due nine months and one day after the end of the accounting period in which the loan was made, the same date as the company’s normal corporation tax payment.1Legislation.gov.uk. Corporation Tax Act 2010 – Section 455 For a company with a 31 March year end, the deadline is 1 January of the following year.
If the participator repays the loan before that date, no Section 455 tax is due at all. That is the simplest way out, and the reason accountants press directors to clear overdrawn loan accounts promptly. Miss the deadline and the full 33.75% becomes payable, with interest on late payment on top, and the company’s cash stays tied up until it can reclaim the tax later.
Reclaiming the Tax After Repayment
Section 455 is a temporary charge. Once the participator repays the loan, or the company releases or writes it off, the company can claim relief under Section 458 for the full tax paid, or a proportionate part on a partial repayment.4Legislation.gov.uk. Corporation Tax Act 2010 – Section 458
Timing is the catch. If the repayment happens after the original Section 455 tax has already become due, relief cannot be claimed until nine months after the end of the accounting period in which the repayment occurred. That can leave a company out of pocket for well over a year between paying the tax and receiving the refund.
Where the repayment falls within the same period covered by the company’s tax return, relief is claimed by amending that return. Otherwise the company uses HMRC’s L2P process to submit a standalone reclaim.5GOV.UK. Reclaim Tax Paid by Close Companies on Loans to Participators (L2P) The claim must be made within four years of the end of the financial year in which the repayment, release, or write-off took place. Miss that window and the money is gone.
The 30-Day Anti-Avoidance Rule
Repaying a loan just before the deadline and borrowing the same amount back shortly afterwards does not work. Under Section 464C of the Corporation Tax Act 2010, if a loan is repaid and then a new loan or advance is made within 30 days, the repayment does not count toward reducing the Section 455 charge.6GOV.UK. Company Taxation Manual – CTM61625 A separate arrangements rule catches more sophisticated schemes regardless of the 30-day timing. Only genuinely enduring repayments qualify for relief.
What the Borrower Pays Personally
Section 455 is a company tax, but the borrower is not off the hook. If you are a director and shareholder and your outstanding loan exceeds £10,000 at any point during the tax year, the company must report the loan as a benefit in kind.7GOV.UK. Directors Loans – If You Owe Your Company Money The taxable benefit is the difference between any interest actually paid and HMRC’s official rate, which is 3.75% for the 2025-26 tax year.8Legislation.gov.uk. The Taxes (Interest Rate) (Amendment) Regulations 2025 The company also owes Class 1A National Insurance on that benefit.
On a £30,000 interest-free loan, the taxable benefit for the year would be £1,125, added to your income and taxed at your marginal rate. Loans of £10,000 or less escape the benefit-in-kind charge entirely.9Legislation.gov.uk. Income Tax (Earnings and Pensions) Act 2003 – Benefit of Taxable Cheap Loan Treated as Earnings
If the company decides to release or write off the loan rather than collect it, the written-off amount is treated as the borrower’s income under Section 415 of the Income Tax (Trading and Other Income) Act 2005.10Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Section 415 HMRC treats this as dividend income, taxed at the dividend rates for the borrower’s tax band. The company can still reclaim its Section 455 tax, but the borrower picks up a personal bill that often comes as a surprise.
Reporting the Loan to HMRC
Loans to participators are reported on supplementary pages CT600A, filed alongside the company’s corporation tax return through HMRC’s online service.11HM Revenue & Customs. Completing the CT600A Page for Close Company Loans and Arrangements to Confer Benefits on Participators The CT600A is required whenever the company made loans to participators or associates during the accounting period that were not fully repaid by the end of that period. The figures on it need to match the company’s own accounting records, because discrepancies are a common trigger for HMRC queries.