Tax Treatment of Subsequent Close-Company Interest: Reclaim Rules

A Section 455 tax reclaim is how a close company gets back the corporation tax it paid on a loan to a participator once that loan is resolved. The mechanism sits in Section 458 of the Corporation Tax Act 2010: when the participator repays the loan, or the company formally releases or writes it off, the company becomes entitled to recover the 33.75% charge it paid under Section 455.¹ The refund is not automatic, it is not immediate, and it can be lost entirely if the paperwork misses a four-year window.

What Triggers the Reclaim

Three events open the door to a Section 458 claim:

Repayment of the loan by the participator, in whole or in part.
Formal release of the debt by the company, usually through a board resolution or deed.
Write-off in the company’s accounts acknowledging the debt will not be recovered.

Relief is proportional. If a £50,000 loan generated a £16,875 Section 455 charge and the participator repays £20,000, the company reclaims 40% of the original charge. The remaining Section 455 tax stays with HMRC until the rest of the loan is resolved.

The rules apply where the borrower is a participator in a close company, or an associate of one. A close company is broadly a UK company controlled by five or fewer participators, or by any number of participators who are also directors, which captures most owner-managed limited companies.²³⁴

When You Actually Get the Money Back

This is the point that catches most companies out. HMRC will not pay the refund until nine months and one day after the end of the accounting period in which the loan was repaid, released, or written off.⁵ The date the claim is submitted does not accelerate this; the earliest possible refund date is fixed by the accounting period in which repayment happened.

A worked example makes the timing clear. Say the company’s accounting period ends on 31 March 2026. If the participator repays the loan on 15 January 2026, the repayment falls inside the period ending 31 March 2026, and the earliest refund date is 1 January 2027. If instead they repay on 10 May 2026, the repayment falls into the next accounting period ending 31 March 2027, and the earliest refund date becomes 1 January 2028.⁶ A few weeks of slippage around a year-end can push the refund back by a full year.

The Four-Year Deadline

The outer limit for making the claim is four years from the end of the financial year in which the repayment, release, or write-off occurred.¹ Miss it and the Section 455 tax is permanently lost. Older director’s loan accounts that have been quietly repaid or written off in the accounts, without anyone filing an L2P claim, are a common source of unrecovered tax.

How to File the Claim

There are two routes, and the right one depends on timing.

If the loan was repaid, released, or written off during an accounting period for which the CT600 return has not yet been filed, the relief can be built directly into that return.⁷ No separate application is needed.

If the return for that period has already gone in, the company uses HMRC’s dedicated L2P online service. Filing requires a Government Gateway user ID.⁵ Before starting, gather:

The company’s Unique Taxpayer Reference.
Bank account details for the refund.
The start and end dates of the accounting period in which the loan was originally made, and the date the loan was made.
The start and end dates of the accounting period in which the loan was repaid, released, or written off, and the exact date of that event.
The amount repaid, released, or written off.
The date relief becomes due (nine months and one day after the end of the accounting period in which the loan was resolved).

HMRC may ask for supporting documentation, typically bank statements showing the repayment or board minutes authorising a release, so keep those to hand.

The 30-Day Rule That Can Block Your Refund

Repaying just before the nine-month Section 455 deadline and re-borrowing shortly after used to be a routine way of dodging the charge. Section 464C of the Corporation Tax Act 2010 shuts that down.

If a participator repays a loan and then takes out a new loan of £5,000 or more within 30 days before or after the repayment, HMRC matches the repayment against the new loan rather than the old one.⁸ Section 458 relief on the original loan is denied until an enduring repayment is made. For loans over £15,000, the restriction bites whenever there are arrangements for a replacement loan at the time of repayment, regardless of the 30-day window.⁹ Where a director has multiple loans with overlapping repayment and re-borrowing patterns, the matching calculation can get complicated quickly, and it is the kind of point HMRC scrutinises on inquiry.

The refund is not gone forever in these situations. It just cannot be claimed until the original loan is genuinely and permanently cleared.

What the Reclaim Does Not Recover

Section 458 recovers the Section 455 tax paid by the company. It does not undo everything else the loan may have triggered.

Where the loan is released or written off rather than repaid, the borrower is charged income tax on the amount released or written off under Section 415 of the Income Tax (Trading and Other Income) Act 2005.¹⁰ The borrower reports this through Self Assessment. The company also has to deduct Class 1 National Insurance through payroll on the amount written off or released.⁹ The combined personal tax and NIC cost of a write-off can easily exceed what was saved by taking the loan in the first place, so the choice between pursuing repayment and forgiving the debt is worth modelling before the decision is made.

Repayment is the cleanest resolution: the company reclaims the Section 455 tax, and the borrower faces no additional personal tax charge beyond any benefit-in-kind that accrued while the loan was outstanding. Where possible, treat repayment as the default plan and reserve release or write-off for cases where the borrower cannot pay and the company accepts that the personal tax cost will follow.

1
Legislation.gov.uk. Corporation Tax Act 2010 – Section 458
2
GOV.UK. Company Taxation Manual – CTM60060 – Close Companies: General: Broad Definition
3
GOV.UK. Company Taxation Manual – CTM60107 – Close Companies: Tests: Participator
4
Legislation.gov.uk. Corporation Tax Act 2010 – Section 455
5
GOV.UK. Reclaim Tax Paid by Close Companies on Loans to Participators (L2P)
6
GOV.UK. Company Taxation Manual – CTM98225 – CTSA: Loans to Participators: Claims to Relief – Giving Effect
7
GOV.UK. COTAX Manual – COM53120 – Claims/Reliefs: Other Reliefs: S458 CTA 2010, Claims
8
GOV.UK. Company Taxation Manual – CTM61625 – Close Companies: Loans to Participators: Anti-Avoidance
9
GOV.UK. Directors Loans: If You Owe Your Company Money
10
Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005 – Section 415