I lent my brother some money from a company of mine, to buy a taxi. He is slowly but consistently paying back the money, but it could take around three years to pay it all back. My question is: could I or the company incur an additional tax charge for the money the company lent?

Arthur Weller replies:
When you say ‘a company of mine’ I presume that you mean that you are a director (employee) and a substantial shareholder of the company. I also presume that the loan is interest free: (1) If you look at HMRC’s Corporate Taxation manual at CTM61510 (‘Charging provisions’), CTM60107 (‘Participator’) and CTM60150 (‘Associates’), you can see that this is a loan to an associate of a participator in the company, and as such is caught by the ‘section 455’ rules, which taxes the company at 32.5% on the amount of the loan outstanding nine months after the accounting year end of the company. When the loan is repaid to the company, HMRC repay this tax to the company. There is an exception to this when the loan does not exceed £15,000, but only when the shareholder does not own more than 5% of the shares. (2) If an employee or relative of an employee (see HMRC’s Employment Income manual at EIM26112: ‘Meaning of relative’) receives an interest-free loan from an employer, this is a benefit-inkind for the employee (EIM26102: ‘When a chargeable benefit arises- taxable cheap loans’). Interest at the official rate (currently 3%) is calculated, and this deemed interest is subject to tax. However, there are exceptions to this tax charge: (a) If the loan is a ‘qualifying loan’; (b) even if it is not a qualifying loan, if it islessthan £10,000; and (c) if the employee can show that they received no benefit from the loan to a relative. It would appear that this loan is a qualifying loan because ‘the interest would be deductible in computing the borrower’s profit from a UK trade’ (EIM26136: ‘Exemptions - fully qualifying loans’). With regard to ‘no benefit received from a loan to a relative’, HMRC is reluctant to apply this when the employee is a director who controls the company (EIM26150: Exemptions - no benefit derived from loan to relative).