Shareholder loans are common in SMEs where a shareholder injects funds into their company. HMRC has specific rules for close companies. If the company doesn't repay within 9 months of year end, it may face a s.455 tax charge (32.5%). Interest paid to shareholders may be subject to income tax.

• s.455 tax: 32.5% on outstanding loan if not repaid within 9 months of accounting year end
• Interest payments to shareholders are subject to basic rate income tax withholding (20%)
• Loans over £10,000 to director/shareholders require shareholder approval (Companies Act 2006 s.197)
• Consider whether loan should be secured or unsecured
• Loan vs equity: HMRC may reclassify if terms are uncommercial

Legal reference: Corporation Tax Act 2010 s.455; Income Tax Act 2007; Companies Act 2006 s.197