This Content Was Last Updated on February 9, 2017 by Jessica Garbett


The rate of tax charged on directors’ overdrawn loans has increased to 32.5%.

A reminder that from 6 April 2016 the rate of tax charged on loans to participators increased to 32.5%. The new rates apply to loans made and benefits conferred by close companies on or after 6 April 2016.

Clause 46 Finance Bill (No2) 2016 states in 6 subsection 3, 4 and 5:

  • the rate of section 464A tax for arrangements conferring a benefit on a participator at the dividend upper rate specified in section 8(2) of ITA 2007 for the tax year in which the benefit is conferred
  • sub-section 2 provides that the increased section 455 rate applies to loans made on or after 6 April 2016.
  • sub-section 4 provides that the increased section 464A rate applies to any benefits conferred on or after 6 April 2016.

In the background note it is stated that ‘The tax rate mirrors the dividend upper rate. To ensure this remains the case, given changes to dividend taxation, the rate is being specifically linked to the dividend upper rate. As dividend tax rates are increasing from April 2016, the loans to participators rates will therefore also increase. The new rates will ensure that section 455 and section 464A continue to meet their policy objective of deterring close companies from making loans or other arrangements which have the effect of minimizing the income tax burden of individuals.’

Article from ACCA In Practice