Many of our clients and readers will be familiar with the "loan to participator" rules. These rules apply to loans made by close companies, which in general terms are companies which are controlled by five or fewer participators (or by any number of participators who are also shareholders), to their participators. The word "participator" includes shareholders and other holders of certain interests, including some creditors. Companies with private capital investment are often close because partners in a partnership can be treated as connected with each other for these purposes.
Where the loan to participator rules apply, a tax charge of 33.75% (increasing to 35.75% from 6 April 2026) arises when the loan in question remains outstanding more than 9 months after the end of the accounting period in which the loan was made. Although the tax charge is refundable when the loan is released or written off, these rules can cause significant cash flow issues for impacted businesses, and writing
