There are special rules to prevent close companies, generally companies controlled by a small group of individuals, from allowing directors or shareholders to take money out of the company without paying the appropriate tax. Under CTA10/S455, if a close company makes a loan to participators (typically a shareholder, director or someone with significant influence) it can be liable to pay tax on that transaction.

The S455 charge does not automatically make the loan a distribution or income for the recipient, but the company must account for the tax. Some limited exceptions exist, such as loans made in the ordinary course of a lending business.

If a loan remains outstanding beyond nine months and one day after the end of the company’s accounting period, the company must pay a tax charge, calculated as a percentage of the loan amount. This ensures that short-term loans that are quickly repaid do not trigger the charge. The tax is calculated on each new loan or benefit in an accounting period, not the total outstanding balance.

Loans to directors or employees on beneficial terms may also create additional tax liabilities under employment income rules. Companies must include any S455 liability in their Corporation Tax return.