HMRC have long had a dislike of loans made to the directors/shareholders of close companies, and their suggestions in the July consultation represented their feelings.
Under the current legislation loans to participators (shareholders) which are not cleared within 9 months and 1 day (the due date for the last accounting periods corporation tax) a 25% tax charged is applied.
The common practise is for dividends and or salary to be declared in order to clear the loan account. HMRC in practise accept this route as the declaration of dividends or salary produces taxable income in the hands of the participator. Another common practise is for short term finance to be arranged to clear the loan within the 9 month window, and then drawn again after the deadline, this method is not favourable with HMRC.
If neither route is adopted the charge is payable, however this can be refunded when the loan is cleared.
The consultation document explores four options, some of which propose to increase the charge to 40% and some which propose that the charge is non-refundable even after the repayment of the loan.
Given HMRCs clear intentions to change the current legislation, and dislike for how the legislation is being treated in practice, British Taxpayers propose dividends are declared at the beginning of the accounting period to avoid such charges or benefit in kind legislation applying.