Introduction
HM Revenue & Customs (HMRC) is contacting tax agents whose clients may have incorrectly claimed relief on Corporation Tax returns for loans made to participators.
This action focuses on company returns filed before April 2025, where anticipated loan repayments formed the basis for claiming relief from the section 455 tax charge. HMRC is urging agents to review and correct affected filings to minimise the risk of tax underpayment and additional interest.
Background on Participator Loans
A participator loan arises when a close company lends money to a participator, which is typically a shareholder or someone with significant control, or to their associate.
If such a loan is not repaid within the accounting period, a tax charge is levied on the company under section 455 of the Corporation Tax Act 2010. The current rate for the section 455 tax charge is 33.75%. This measure is intended to discourage companies from providing tax-advantaged finance to those with influence over the company's resources.
Section 455 Tax and Corporation Tax Returns
If a loan to a participator is repaid, released, or written off within nine months of the company’s accounting year-end, relief can be claimed on the section 455 tax charge.
Claims are made using the supplementary CT600A page of the Corporation Tax return. Historically, some companies have claimed anticipated relief by indicating that repayments would be made within the allowed period, even if not completed at the time of filing the return.
Relief for Loan Repayments: Previous Rules
For Corporation Tax returns submitted before 1 April 2025, HMRC permitted companies to claim relief on the expectation of a future loan repayment. As long as the loan was repaid within nine months after the accounting period's end, the CT600A could reflect this anticipated transaction.
This approach carried a risk if the anticipated repayment did not occur as planned, potentially resulting in an underpayment of the section 455 tax.
HMRC's Current Compliance Initiative
According to the Institute of Chartered Accountants in England and Wales (ICAEW), HMRC has recently begun emailing tax agents to highlight returns where clients reported future repayment dates on participator loans.
HMRC's concern is that some of these anticipated repayments may not have materialised, leading to tax relief being incorrectly claimed. An HMRC spokesperson has stated that this compliance exercise is intended to ensure tax is paid correctly and to prevent any loss to the exchequer where repayments were not completed as anticipated.
Actions Required by Agents and Companies
HMRC's emails instruct agents to contact HMRC by 28 November 2025 to obtain details of potentially affected clients. Agents are asked to work with their clients to review and, if necessary, amend prior Corporation Tax returns to accurately reflect any changes to the loan repayment status.
HMRC further advises that, where additional tax is found to be due, companies should make a payment on account promptly. Doing so may reduce the amount of interest charged on the late payment.
Final Summary
HMRC's initiative to contact agents regarding participator loan repayments highlights a broader drive for accuracy in Corporation Tax filings and for tackling potential tax losses associated with anticipated repayments that do not occur.
This process requires timely cooperation between agents, companies, and HMRC, particularly ahead of the upcoming deadline of 28 November 2025 for initial responses. With changes to the rules from April 2025, companies will need to adopt new practices to ensure that only completed loan repayments qualify for relief.
These changes aim to foster greater tax compliance and reduce interest charges from inaccurate claims. For further guidance on complex tax compliance questions, professionals may find it helpful to consult resources such as the Pie app.
