Close companies and the section 455 charge on loans to participators

What a close company is

A company is close if it is under the control of 5 or fewer participators, or of participators who are directors. It is also close if 5 or fewer participators, or participator directors, would be entitled to the greater part of its assets on a winding up (CTA 2010 s439). Sections 442 to 447 take some companies out, such as companies controlled by a company that is not itself close.

A participator is broadly anyone with a share or interest in the capital or income of the company, including shareholders and loan creditors.

The section 455 charge

When a close company makes a loan or advance to a participator, or an associate of one, the company owes tax equal to the dividend upper rate for the tax year in which the loan is made (CTA 2010 s455(2)). The tax is due the day after the end of 9 months from the end of the accounting period in which the loan was made, the same date as the main corporation tax (CTA 2010 s455(3)).

Incurring a debt to the company, such as an overdrawn director's loan account, counts as a loan (CTA 2010 s455(4)). See directors' loan accounts.

The rate by date of the loan

Before 6 April 2016

25% (GOV.UK: CT600A guidance)

6 April 2016 to 5 April 2022

32.5% (GOV.UK)

6 April 2022 to 5 April 2026

33.75% (GOV.UK)

From 6 April 2026

35.75%, following the dividend upper rate set by the Finance Act 2026 (ITA 2007 s8; HMRC technical note)

The 2026 rate change

The Finance Act 2026 raised the dividend upper rate to 35.75% for 2026 to 2027 onwards (ITA 2007 s8). HMRC's technical note says the loans to participators rate is tied to the dividend upper rate and so also rises to 35.75% (HMRC technical note). HMRC's CT600A guidance still lists 33.75% as the latest rate, so check the date of each advance when completing Part 1 (GOV.UK: CT600A guidance).

Worked example

For example, a director borrows £20,000 from her company on 1 June 2026. The company's year ends on 31 December 2026. If none of it is repaid, the section 455 tax is 35.75% of £20,000, which is £7,150, due on 1 October 2027 (CTA 2010 s455).

If she repays the £20,000 before 1 October 2027, the company claims relief in Part 2 of CT600A and no section 455 tax is paid (GOV.UK: CT600A guidance).

If she repays it on 1 March 2028, the £7,150 is due on 1 October 2027. Relief is claimed in Part 3, and HMRC does not give it until 9 months after the end of the accounting period in which the repayment was made, here 9 months after 31 December 2028 (CTA 2010 s458).

Relief under section 458

Relief from the section 455 tax, or a proportionate part of it, is given when the loan is repaid, released or written off. It cannot be given before 9 months from the end of the accounting period in which the repayment, release or write-off happened. The claim must be made within 4 years from the end of the financial year in which that happened (CTA 2010 s458).

See directors' loan accounts for the director's side.

Repayments followed by new loans

• The rules on matching repayments to new loans are in section 464ZA, inserted by the Finance Act 2025 with effect from 30 October 2024. It replaced section 464C.
• The 30-day rule applies when, within any 30 days, repayments of £5,000 or more are made and new chargeable payments of £5,000 or more are made to the same person or an associate. The repayment is treated as made against the new payments, so the original loan stays outstanding (CTA 2010 s464ZA(1)).
• The arrangements rule applies when £15,000 or more is owed before a repayment and, at the time of the repayment, arrangements had been made for new payments of £5,000 or more to replace some or all of it (CTA 2010 s464ZA(3)).
• Neither rule applies to a repayment that is itself charged to income tax on the participator, such as a dividend or bonus credited to the loan account (CTA 2010 s464ZA).

Questions