Policy paper

Close company shareholders — anti-avoidance measure

Updated 12 November 2024

Who is likely to be affected

This measure affects the participators of close companies which undertake tax avoidance arrangements falling within Chapter 3A of the Corporation Tax Act 2010.

General description of the measure

This measure removes opportunities for avoidance of the tax charge (known as s455 tax) on loans from and benefits conferred on their participators which exploit the current mechanics of the anti-avoidance rule.

Policy objective

The measure will protect the Exchequer from loss of revenue through use of arrangements aimed at avoiding existing legislation meant to prevent untaxed extractions of company funds by their shareholders. This supports the government’s objective of a fair tax system.

The measure will also bring the Targeted Anti-Avoidance Rule (TAAR) within the loans to participators regime into line with other TAARs. Where there are tax avoidance arrangements, a more modern TAAR would not allow later relief as here in the case of a return payment.

Background to the measure

We have become aware of arrangements using a group of companies or amongst associated companies, so that new loans are made and then repaid in a chain such that no s455 charge arises on the increasing amounts extracted. Chapters 3A and 3B cannot catch the behaviour.

The government announced this measure on 30 October 2024.

Detailed proposal

Operative date

The measure will have effect for any tax avoidance arrangements falling within Chapter 3A made on or after 30 October 2024.

Current law

The rules governing the charge on loans from close companies to, or benefits conferred on, their participators are found at Chapters 3, 3A and 3B of Part 10 of the Corporation Tax Act 2010. The purpose of this loans to participators regime is to deter companies from making untaxed loans to their participators, or allowing them otherwise to extract company funds untaxed, rather than paying wages, dividends or other income chargeable to tax.

The charge is on the close company at a current rate of 33.75% of any amounts outstanding 9 months after the end of the accounting period. The close company must have made the loan or advance to, or conferred a benefit on, participators who are individuals (subject to certain limited exceptions) during the accounting period. The close company can claim relief for any s455 tax if the loan, other monies, or value is repaid to the company.

Chapter 3 also contains provisions to prevent avoidance, for example, through the use of indirect loans and insertions of a non-close company into the structure.

Chapter 3A includes a TAAR meant to charge any avoidance arrangements not otherwise caught by the other legislation. It applies where the arrangements avoid, reduce or obtain a relief or increased relief from a s455 charge on the company, or where there is an income tax advantage for the participator.

Chapter 3B is designed to combat the making of short-term repayments to prevent the tax charge becoming due and payable, very shortly followed by a withdrawal of a ‘new’ loan on similar terms (known as ‘bed and breakfasting’). That legislation countered this behaviour where it took place within a single company.

Mirroring the main provisions, these chapters currently allow, under s464B, for relief from the charge where the loans or other extractions were repaid even in the case of avoidance.

Proposed revisions

Legislation will be introduced in Finance Bill 2024-25, applicable from 30 October 2024, to ensure that where the TAAR applies (where companies and their shareholders are attempting to avoid the s455 charge on any extractions), tax is payable whether or not there has apparently been a repayment, or a repayment is subsequently made.

S464B will be repealed and relevant amendments made to s464D.

Chapter 3B will be moved in its entirety to Chapter 3 to form a part of the general rules.

Chapter 3A will then contain only the TAAR for the loans to participators regime.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
+ 5	+ 10	+ 5	+ 5	+ 5	+ 5

These figures are set out in table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure has no impact on compliant individuals. The legislation will only impact close companies and their participators who are aiming to extract company funds in an untaxed form using aggressive tax planning.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on those in groups sharing protected characteristics.   

Impact on business including civil society organisations

This measure makes a small change to an existing well established anti-avoidance rule.  Other than a negligible one-off cost with familiarising themselves with the change, the measure has no impact on compliant businesses.

This measure is not expected to impact civil society organisations.  

This measure is expected overall to have no impact on businesses’ experience of dealing with HMRC, as the change does not change any processes or tax admin obligations.

Operational impact (£ million) (HMRC or other)

There should be no operational or deliverability impacts. Cases will be found by general compliance activity.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

None of the evaluation principles will apply to this measure. However, this will be kept under review.  

Further advice

If you have any questions about this change, contact Lorraine Coster by:

• telephone: 03000 585 676
• email: lorraine.coster@hmrc.gov.uk