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Reform of close company loans to participators rules?

HMRC has published a consultation on reform of the close company rules relating to loans to participators. The rules have been around, more or less in their current form, since 1965. The close company HMRC has published a consultation on reform of the close company rules relating to loans to participators. The rules have been around, more or less in their current form, since 1965. The close company rules are complex but, in brief, they apply to companies which are controlled by five or fewer participators or by any number of directors who are also participators. "Participator" includes shareholders and others with particular interests in a company.

The loans to participators rules impose a 25% tax charge on a close company in respect of any loan or advance made to a participator which is outstanding more than nine months after the accounting period in which it is made. The tax charge is generally refunded once the loan is repaid.

The consultation seeks views on a number of options for reform. These include:

- increasing the tax charge; and

- imposing a permanent annual (non-refundable) charge on loan amounts outstanding at the year end.

The consultation period ends on 2 October 2013. If reform proceeds, draft legislation is expected in the Autumn for inclusion in Finance Bill 2014.

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