CTM61550 | Close companies: loans to participators: indirect loans
From HM Revenue & Customs · Company Taxation Manual
deals with some loan arrangements where the loan is not made directly to an individual participator in the company (or an associate of a participator). It applies where:
a close company makes a loan or advance which does not otherwise give rise to any charge under ,
some person other than the close company makes a payment or transfers property to or releases or satisfies (wholly or partly) a liability of an individual who is a participator or an associate of a participator,
and
the two events, loan and payment/release/satisfaction, are part of arrangements made by any person
Example 1
Company D is a close company. Instead of making a loan directly to X, an individual participator, it makes it to an associated company, Company E. Company E then passes the loan to X. The loan by one company to the other is treated as if it had been made direct to X.
was enacted specifically to cover this situation (loan followed by loan) though it also covers other indirect transfers of value.
Example 2
Company T, a close company, makes a loan to A. A is an individual participator in Company W but not in Company T. Company W, acting in concert with Company T, then makes a loan to D, an individual participator in Company T. Company T and Company W have swapped loans to participators and are treated by as if they had each made loans to their own participators.
Consideration should be given to whether could be applied to loans to partnerships that are not otherwise chargeable (see ) and, similarly, to loans to employee share schemes/employee benefit trusts etc where (1) does not apply (see ).
It should also be considered in management buy-out situations. In many cases the close company makes a loan to the new owners who then use those funds to pay the outgoing shareholders for their shares. Whilst this can be a difficult area in which the facts are absolutely crucial, it is exactly the type of arrangement which should be chargeable under . The company’s own money is being used to buy out the existing shareholders.
When applies, the close company should be assessed in the usual way and onwards apply.
is subject to and does not apply where a person makes these arrangements in the ordinary course of their business.