When a company which is controlled by its directors, or by five or fewer shareholders, makes a loan to a director or shareholder, it must pay an extra corporation tax charge set at 25% of the loan.
That corporation tax charge is only payable if the loan is outstanding nine months after the year end and it can be reclaimed from HMRC when the loan is repaid.
This corporation tax charge will rise to 32.5% for loans made on and after 6 April 2016.
The change aligns the tax payable in respect of a loan from a company with the tax payable on a dividend paid to a higher rate taxpayer, although the tax on the loan can be reclaimed by the company, whereas dividend tax paid by an individual can’t be reclaimed.
