Draft legislation has been published which confirms an announcement made in Budget 2013 and which has effect from 20 March 2013.
A close company (which generally includes an owner managed company) may be charged to tax where it has made a loan or advance to individuals who have an interest or shares in the company (known as participators). Loans and advances are also caught where they are made to an associate of the individual such as a family member.
The corporation tax charge is 25% for the year end balance where the loan is still outstanding nine months after the end of the accounting period.
The new law will prevent the practise of avoiding the payment of the tax charge by repaying the loan before the tax is due (nine months after the end of the accounting period) and then effectively withdrawing the same money shortly after. This change may also prevent refunds of the 25% tax already paid where loans are redrawn shortly after.
This change may affect a number of owner managed companies and we will be happy to discuss this with you.