Loan to Participator who is not a director but has material interest

Antoinnette

Hi there,
I just need to confirm I am going down the correct route before I advise client. :001_smile:
My client is a closed company with two directors with over 40% each of the the shares. There is also a shareholder who has 7% of the shares so has material interest. He is now going to be working full time for the company. The directors take salaries and dividends as usual and directors loan in between. Can I do the same for this participator?
CTM61540 says s455 doesnt apply if the following conditions are met
1. The amount of the loan in question plus the outstanding amounts of loans made to the borrower does not exceed £15,000.
2. The borrower works full time for the close company or any of its associated companies.
3. The borrower does not have a material interest (see CTM61560) in the close company or any of its associated companies.

But as he has material interest I am not entirely sure whether I have to set up a director's loan account for him as well. I realise that under s455 if the loan account is overdrawn the 25% interest kicks in. So is the director's loan the way to go as number three doesnt apply?

Please help

deanshepherd

When you ask "Can I do the same for this participator?" what do you mean?

If you are saying he is being loaned money and every now and then a dividend is declared to clear that loan then, yes, he is caught by s455 if any monies were due from him at year end.

Usual advice applies, get him to repay/clear within 9 months to avoid 25% charge, suggest declaring dividends in advance or at time of advances to make them dividends rather than loans immediately, watch out for beneficial loan interest rules.

Antoinnette

Hi Dean,
Thanks for reply. "Can I do the same for participator" was referring to paying him a salary of £625 a month and then paying dividends on top of that.

Since posting I have looked read the employment contract he has signed and as he is not a Director it will be hard to justify not paying him at least minimum wage for full time hours. I have adviced them to pay a proper salary with NI and PAYE to HMRC as usual and then give him dividends when its declared. If he is given any loans, it will then be treated as a beneficial loan instead of an s455 one to be declared on the P11D at the end of the year if its still outstanding

RAS

If he is loaned money then both s455 and P11d diclosures would apply depending on amount of loan and whether repaid. Not sure why you think s455 wouldnt apply.

Antoinnette

Eeek!!! Yes you are right Ras.....he has more than 5% so both WILL apply. Thanks for pointing that out:001_smile: