Corporation Tax Act, 1976

Loans to participators, etc.

98.—(1) Subject to the following provisions of this section, where after the 5th day of April, 1976, a close company, otherwise than in the ordinary course of a business carried on by it which includes the lending of money, makes any loan or advances any money to an individual who is a participator in the company or an associate of a participator, the company shall be deemed, for the purposes of this section, to have paid in the year of assessment in which the loan or advance is made, an annual payment of an amount which, after deduction of income tax at the standard rate for the year of assessment in which the loan or advance is made, is equal to the amount of the loan or advance, and section 151 (income tax on payments) shall apply for the purposes of the charge, assessment and recovery of such tax:

Provided that the annual payment referred to in this subsection shall not be a charge on the company's income within the meaning of section 10 (allowance of charges on income).

(2) For the purposes of this section the cases in which a close company is to be regarded as making a loan to any person include a case where—

(a) that person incurs a debt to the close company, or

(b) a debt due from that person to a third party is assigned to the close company,

and then the close company shall be regarded as making a loan of an amount equal to the debt:

Provided that paragraph (a) shall not apply to a debt incurred for the supply by the close company of goods or services in the ordinary course of its trade or business unless the credit given exceeds six months or is longer than that normally given to the company's customers.

(3) Subsection (1) shall not apply to a loan made to a director or employee of a close company, or of an associated company of the close company, if—

(a) the amount of the loan, or that amount when taken together with any other outstanding loans which were made by the close company or any of its associated companies to the borrower, or to the wife or husband of the borrower, does not exceed £15,000,

(b) the borrower works full-time for the close company, or any of its associated companies, and

(c) the borrower does not have a material interest in the close company or in any associated company of the close company but if the borrower acquires such a material interest at a time when the whole or part of any such loan remains outstanding the close company shall be regarded as making to him at that time a loan of an amount equal to the sum outstanding.

(4) Where, after a company has been assessed to tax under this section in respect of any loan or advance, the loan or advance or any part of it is repaid to the company, relief shall be given from that tax, or a proportionate part of it, by discharge or repayment.

Relief under this subsection shall be given on a claim, which must be made within ten years from the end of the year of assessment in which the repayment is made.

(5) Where, under arrangements made by any person otherwise than in the ordinary course of a business carried on by him—

(a) a close company makes a loan or advance which, apart from this subsection, does not give rise to any charge on the company under subsection (1), and

(b) some person other than the close company makes a payment or transfers property to or releases or satisfies (in whole or in part) a liability of, an individual who is a participator in the company or an associate of a participator,

then, unless in respect of the matter referred to in paragraph (b) there falls to be included in the total income of the participator or associate an amount not less than the loan or advance, this section shall apply as if the loan or advance had been made to him.

(6) In subsections (1) and (5) (b), the references to an individual shall apply also to a company receiving the loan or advance in a fiduciary or representative capacity, and to a company not resident in the State.

(7) For the purposes of this section any participator in a company which controls another company shall be treated as being also a participator in that other company; and section 97 (6) shall apply for the purpose of determining whether a person has, for the purpose of subsection (3), a material interest in a company.

(8) Where on or after the 27th day of November, 1975, but not later than the 5th day of April, 1976, a close company makes any loan or advances any money to an individual who is a participator in the company or an associate of a participator, the company shall be deemed for the purposes of this section to have made the loan or advanced the money on the 6th day of April, 1976:

Provided that this subsection shall not apply to any loan or advance or any part of it which is repaid to the company before the 6th day of April, 1976.