The Policy & Resources Committee has agreed action to prevent an avenue of tax avoidance to ensure that everyone pays their fair share.
Currently, some individuals set up personal investment companies making non-commercial shareholder loans to the companies so that they can then draw down on this through loan repayments, paying 0% tax.
To address this, an additional example has been added to the Statement of Practice M45 ‘Legal avoidance’ to make it clear that repayments of non-commercial shareholder loans are classed as dividends, where the company has income taxed at less than 20%. This will require the company to report and pay tax on behalf of the shareholder at 20% on these repayments.
In addition, the Policy & Resources Committee approved a proposal to amend the Income Tax (Guernsey) Law, 1978, so that repayments of non-commercial shareholder loans are classed as dividends, with the intention that this will be included in the 2026 Budget. This will ensure that the relevant tax is reported and paid by the company in a timely manner.
Changes have already been made to the 2024 company tax return to ensure that such loan repayments are easily identified to enable the Revenue Service to make targeted enquiries.
Deputy Lyndon Trott (pictured), President of the Policy & Resources Committee, said: “When it comes to income tax, we have to ensure that everyone is paying their fair share, including businesses and individuals. But we are even more acutely aware of this at a time when we as a government have a £44 million deficit.
“This isn’t the panacea for our financial woes, but we’re taking action to close this loophole to make sure that we’re collecting tax that belongs to the public purse to contribute towards essential services that benefit our community.”