Inland Revenue does not want participators in a company to receive “tax-free” loans instead of taxable salaries or dividends. If a loan is made and not repaid to the company within nine months of the end of that accounting period, the company must pay 25% of the loan amount to Inland Revenue (ICTA88/S419) as further tax.
In addition, any loan in excess of £5,000 made to a director or an employee is also a benefit in kind unless the recipient pays the official rate of interest on the loan. The benefit will be taxed in the participator’s personal capacity.
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