When the Directors Loan Charge applies - and the tax charges
When loans are provided by an incorporated company to a director or relevant connected party - and this loan remains outstanding over 9 months after the end of the accounting period - the Directors Loan Charge applies.
The Section 455 Directors Loan Charge applies to the outstanding loan balance at a rate of 32.5% and is reported via a supplementary form to the CT600, known as the CT600A.
This tax charge is commonly referred to as a temporary tax, as it is refundable once the loan has been repaid to the company, or legitimately written off.
How to correctly claim Directors Loan Charge
When the loan is sequentially repaid, a common mistake is to assume that you can trigger the repayment or offset this tax charge via the subsequent CT600, or relevant supplementary page filed for the company.
The correct process is to file an entirely separate form now as the L2P Form for the 'reclaim tax paid by close companies on loans to participators'. This can be done online, but the process can sometimes be quite temperamental, so our suggested route is to complete this
PDF download generator for the Form L2P - and send it to HMRC via post. The address for posting the Form L2P is:
Corporation Tax Services
HM Revenue and Customs
BX9 1AX
United Kingdom
