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S. 455

S. 455

I act for two clients who are 50/50 shareholders in a limited company and also 50/50 partners in another, separate partnership. The two businesses operate out of the same premises and share overheads and joint expenses etc. on an agreed basis.

The clients in their capacity as directors of the company have overdrawn DLA balances which have properly been declared to HMRC. However, the company also has a debtor balance due from the partnership. There has historically been an inter-business balance between the company and the partnership caused by recharging of proportions of expenses and/or simply borrowing between the two business from time to time to fund cash flow requirements. Sometimes the balance has been credit, sometimes debit.

This has not been a problem in the past. However, in 2010/11 for some reason the inspector has raised a query, claiming that the inter-business balance falls within S.455 and should therefore have been declared on the supplementary pages on the CT600.

Now, any balance arising on this account has always been for business purposes. It has never represented anything used personally by the partners (that's what the DLA is for). It seems to me that the Inspector wants to treat the inter-business balance simply as an extension of the DLA, and I'm sure that S.455 ever intended this.

Does anybody out there have previous experience of this situation? Observations as ever gratefully received.

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23rd Oct 2012 20:10

Contradiction?

"There has historically been an inter-business balance between the company and the partnership caused by recharging of proportions of expenses and/or simply borrowing between the two business from time to time to fund cash flow requirements."

and

"Now, any balance arising on this account has always been for business purposes."

If the partnership has cash flow needs why don't the partners provide funding?

I agree with HMRC.

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24th Oct 2012 00:03

HMRC are correct, sorry.
Had a similar enquiry a few years ago.

This is effectively a loan to a participator and is caught under the legislation.

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By DMGbus
24th Oct 2012 13:29

I agree - liable to s455 tax charge - but no BIK

Having been alert to this potential problem for some of my clients I have on several occasions searched for an exemption to s455 (was s419) tax charge and failed to find one, so a Ltd Co being owed money by a partnership that a participator was involved with has been a situation clients have been advised to avoid.

What exemption I DID find many years ago, however, was from the beneficial loan rules (something along the lines that no BIK would arise if, had interest been paid on the loan, then that interest paid would have qualified for tax relief). 

 

 

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By blok
24th Oct 2012 09:20

.

scottish partnerships are ok.

http://www.hmrc.gov.uk/manuals/ctmanual/CTM61515.htm 

 

 

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24th Oct 2012 10:45

S.455 Ltd co and partnership

I have had a number of cases in the past where there is trading between a Limited Company and a Partnership where there partners are director/shareholders of the Company.

HMRC (correctly) treat debts due from the Partnership to the Company as being subject to S.455 in the same way as a simple director loan.  They have however, generally been willing to accept that any debt settled within normal commercial terms (often accept three months) is not subject to S.455, even when there is a consistent or growing balance beyound the normal nine months.

This is always a risk where there are multiple trading entities and needs to be keep under review.

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By BKD
24th Oct 2012 11:08

To clarify blok's comment ...

Scottish partnerships may be OK

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24th Oct 2012 11:10

Make the company a member of the partnership...

... give up one AIA and have the company hold all the plant and machinery that you want AIA on, unless it's a Scottish Partnership, which as blok says, would have already solved the problem.

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24th Oct 2012 11:34

To clarify BKD's comment

HMRC say that Scottish partnership's may be OK.

Scottish partnership's do have a separate legal personality as a matter of law, so provided that the partnership doesn't just effectively lend the money on to any of the company's participators, there's not a lot that HMRC can do.

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By BKD
24th Oct 2012 12:08

To clarify/correct George's comment

Apostrophe's (sic), George ???

And yes, agreed on HMRC's powers - but the problem scenario that you highlight (where the partnership is no more than a conduit) is exactly what I have seen HMRC attack in practice. And not just because their guidance says that they can - s459 may come into play. So I stand by my original comment - regardless of what HMRC say, a Scottish partnership may be OK.

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24th Oct 2012 12:54

I don't know...

... where those apostrophes came from.  I think the AWeb rich text software shoved them in!

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29th Oct 2012 09:44

Thank you.....

To everybody for your responses.

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