Taxes Consolidation Act 1997 section 437

Interest paid to directors and directors' associates

Section 437 treats as a distribution any excessive interest paid by a close company to a director, or to an associate of a director, where that director has a material interest in the company or in a company that controls it.

• Interest includes any consideration paid for the use of money advanced or credit given; a material interest means beneficial control, directly or indirectly, of more than 5% of ordinary share capital, whether alone or with associates.
• The section applies where a close company pays interest to a director (or associate) of that company, or of any company in the same control chain, provided the director has a material interest in the paying company or its controlling company.
• The permissible limit is calculated at 13% per annum on whichever is the lesser of: the total loans and advances outstanding during the period (or their average if fluctuating), and the nominal issued share capital plus share premium at the start of the period.
• Interest paid in the accounting period that exceeds the overall limit is deemed a distribution; where there are two or more recipients, the overall limit is apportioned between them in proportion to the interest paid to each.