Why am I being charged Class 2 National Insurance in my 2024/25 Self-Assessment?

Some self-employed taxpayers are mistakenly charged Class 2 NICs due to an HMRC IT issue. If your profits exceed £12,570, you should only pay Class 4 National Insurance, not Class 2. Always check your self-assessment 2024/25 calculation to ensure it is correct.

Do I need to pay Class 2 NICs through Self-Assessment for 2024/25?

No. From 6 April 2024, Class 2 NICs are voluntary for self-employed individuals with profits below £6,725. Voluntary contributions can help build qualifying years for your State Pension, but if your profits are above this threshold, Class 2 should not appear on your self-assessment.

What should I do if my Self-Assessment shows the wrong Class 2 NIC charge?

If you’ve filed your 2024/25 self-assessment and notice an incorrect Class 2 NIC charge, contact HMRC to request a correction. If you haven’t filed yet, consider waiting until HMRC resolves the issue (expected by September 2025).

What happens if I already paid the incorrect Class 2 NICs through Self-Assessment?

HMRC will refund or credit any incorrect Class 2 NIC payments to your self-assessment account once the error is fixed. Keep proof of payment and HMRC correspondence for reference.

When is the deadline for submitting my 2024/25 Self-Assessment?

The online filing and payment deadline for 2024/25 self-assessment is 31 January 2026. The HMRC Class 2 NIC error does not affect this deadline. Submit on time to avoid late filing penalties.

Loans to Close Companies – What You Need to Know

If you’re considering making loans to close companies, it’s important to understand the tax relief rules and changes for the 2025/26 tax year.

At Trueman Brown our local Basildon accountants specialise in helping directors and shareholders navigate the complexities of such arrangements.

In this guide we’ll update you on the most recent rules, eligibility criteria and how we can assist.

What exactly are “loans to close companies”?

A “close company” is typically one controlled by five or fewer shareholders, or by any number of shareholders all of whom are directors.

When an individual lends money to a close company (rather than the company lending to a shareholder), this is one form of loans to close companies.

Provided certain conditions are met, interest paid on those loans may qualify for tax relief.

Equally, when the company lends to shareholders (loans from a close company) there are tax charges.

In short: whether you’re looking at lending to or borrowing from a close company, you need to understand how the rules work and what relief may or may not be available.

Infographic titled “Loans to Close Companies: What You Need to Know,” designed in royal blue and white. It uses icons and arrows to show three main sections: “Qualify,” “Claim Relief,” and “Get Support.” The infographic includes key criteria for loan relief, 2025/26 tax updates, and Trueman Brown’s contact details (01708 397262, mark@truemanbrown.co.uk<br />
).

Who can qualify for relief on loans to close companies?

In order to claim relief for interest on borrowing used to make loans to close companies, you must satisfy certain tests:

You borrow money to lend it to a close company in which you have an interest; or to buy ordinary shares in such a company.
You must either own at least 5% of the ordinary share capital (alone or with associates), or you must own some shares and spend the majority of your working time in the management or conduct of the company’s business (or an associated company).
The company must be a close company (and not a close investment holding company) and the loan must be used wholly and exclusively for the purposes of the business (or that of an associated company) rather than funding non-business activities.
If all these conditions are met, relief for the interest you pay on the borrowing may be available under the tax rules.

How are loans to close companies treated for tax purposes?

Interest relief on loans to close companies

For tax year 2025/26 the guidance under the HMRC Helpsheet HS340 confirms that interest paid on loans (and alternative finance arrangements) can be relieved where the borrowing is used to lend to a close company in which you have the requisite shareholding or your working involvement.

Importantly:

The relief is claimed via your Self Assessment tax return.
There are limits: the relief is subject to the limit on income tax reliefs, namely the greater of £50,000 and 25% of adjusted net income.
Overdrafts or credit cards are not eligible for this relief.

Loans from a close company (loans to participators)

Be aware: if a close company makes a loan to a shareholder or director (a participator), the company may face a tax charge under s 455 of the Corporation Tax Act 2010.

The rate is currently 33.75% on the outstanding loan amount nine months after the end of the accounting period.

Moreover, from 30 October 2024 (applying for arrangements made on or after that date) the repayment relief under the TAAR (Targeted Anti-Avoidance Rule) within the loans to participators regime has been removed in certain avoidance cases.

So if you are considering loans to close companies, you also need to check if any reverse loan-arrangements (the company lending to you) might trigger a charge.

Key changes for 2025/26 you should know

The HS340 guidance (updated April 2025) explicitly lists that relief is available when borrowing is used to buy shares in or lend money to a close company where you own more than 5% (or satisfy the working test).
The limit on relief remains: greater of £50,000 and 25% of adjusted net income. Ensure you check your income level accordingly.
The anti-avoidance changes under the TAAR for close company loans to participators remain in force for arrangements on/after 30 October 2024. That means more cautious scrutiny around any structure where company money is moving to shareholders or associates.
For loans to close companies (i.e. you lending → company) the rules haven’t fundamentally changed, but you must ensure the business purpose is valid, and that it is not accidentally caught as a distribution/advance from the company to you.
As ever, records are essential: you’ll need a certificate of interest or alternative finance payments from the lender, and you must retain evidence that the loan was used wholly and exclusively for the business.

Practical considerations for directors and shareholders making loans to close companies

Ensure the company is genuinely a trading company (not a close investment holding company) and the money is used exclusively for the business.
If you are lending money to your company (i.e. as a shareholder), document the loan, interest terms and ensure you treat it as genuine – otherwise HMRC may challenge relief.
Monitor the shareholding and working time tests: if you drop below 5% or cease to perform the majority of work, relief may be lost.
Beware the overlap with the loans from a close company rules: don’t inadvertently create a tax charge by mixing up flows of money.
For Self Assessment, include the interest relief on your tax return and ensure the limit test is applied.
Review structures in place around 30 October 2024 onwards to ensure any arrangements aren’t caught by the TAAR changes.
Ask yourself: is the business purpose genuine? HMRC guidance emphasises the “wholly and exclusively for business purposes” test.

How Trueman Brown can help you with loans to close companies

At Trueman Brown we have extensive experience guiding small owner-managed businesses through the tax rules surrounding loans to close companies.

If you’re considering this type of arrangement, or you already have one in place, we can help with:

reviewing whether your company is a close company and whether the loan qualifies for relief;
checking the shareholding and working time criteria;
ensuring the use of funds by the company meets the “wholly and exclusively” business requirement;
advising on potential risks of the reverse scenario (loan from company to participator) and the s 455 charge;
assisting with the Self Assessment tax relief claim and making sure the limit test is applied;
keeping you up to date with the latest 2025/26 rule changes and anti-avoidance measures.

If you’d like to talk this through, give us a call 01708 397262 or email mark@truemanbrown.co.uk.

We’d be happy to discuss how we can support you with structuring and documentation to give you peace of mind.

Frequently Asked Questions (FAQ)

Q: What is a “close company”?
A: A close company is one controlled by five or fewer shareholders, or a company where all shareholders are also directors.

Q: If I lend money to my company, can I claim interest relief?
A: Yes — if you borrow the money and lend it to a close company in which you meet the shareholding or working test, and the funds are used wholly and exclusively for the business, you might qualify for relief on the interest paid on your borrowing.

Q: What are the current limits on relief?
A: For 2025/26 the relief is subject to the greater of £50,000 and 25% of your adjusted net income.

Q: Do the anti-avoidance rules affect loans to close companies?
A: Yes — while the rules mainly target loans from a close company to participators (company → shareholder), you must ensure your structure isn’t caught by the TAAR which may neutralise relief in avoidance cases. Arrangements made on or after 30 October 2024 are especially liable.

Q: What should I do if I already have a loan to a close company in place?
A: Review the terms of the loan, check the shareholding and working time tests, document the use of funds by the company, confirm the interest terms, and ensure relief has been claimed correctly via Self Assessment. If you’d like assistance with this, feel free to contact us via 01708 397262 or mark@truemanbrown.co.uk

If you’d like to explore how loans to close companies could work for you, or how we can help ensure compliance and maximise relief, please do get in touch with Trueman Brown. We’re here to support your business every step of the way.

Loans to Close Companies – 2025/26 Tax Relief Guide