HMRC checks directors’ loans are paid up

Recap

Where a “participator”, e.g. a shareholder, of a close company (that’s one controlled by five or fewer individuals) borrows money from their company and still owes it nine months after the end of the accounting period in which it was borrowed, a tax charge (a s.455 charge) may be triggered. The tax is equal to 33.75% of the debt at the end of the accounting period. The tax is refundable if you later settle the debt.

The charge is often referred to as applying to “directors’ loans”, but it only relates to loans and debts involving participators (shareholders).

Tax returns

Naturally, the simplest way to avoid a tax charge is to make sure you repay a loan from your company before the deadline of nine months after the end of the accounting period. You may have intended to do this. Before April 2025 it was possible to put a future date as the loan repayment date in your company’s tax return, effectively confirming that there’s no s.455 tax to pay because you will pay your debt before the deadline.

Update

HMRC has since updated its systems to prevent a future repayment date from being entered. If you don’t have the cash to repay your company, but your company has sufficient reserves you can declare a dividend to balance the books.

HMRC checks

HMRC is writing to agents where a return was filed before the date of repayment entered on to a tax return prior to April 2025. If you were late paying, and the tax return hasn’t been amended to reflect this you’ll need to correct the tax return where possible and pay any outstanding tax and/or penalty interest. Either way, you/your advisor will need to respond promptly to HMRC’s letter.