how do people interpret 'arrangements, or an intention' as described
In addition, even if the 30 day rule does not apply to deny relief, relief will be denied if there are amounts (loans, advances of money from the close company or through an extraction of value) outstanding amounting to at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw an amount, either through a loan or advance of money from the close company or through an extraction of value as described in Chapter 3 of this Technical Note and an amount is subsequently redrawn
Replies (18)
Please login or register to join the discussion.
I interpret it as meaning ...
... the existence of any intention or arrangement to redraw the funds after repayment of the loan.
Avoid the problem
I can see this causing difficulty for those who have historically drawn sums regularly from a company creating an overdrawn loan account and clearing it with a dividend. If there is a regular pattern is this not evidence of an intention?
I think the best advice is to ensure that dividends are declared more frequently to avoid the loan going overdrawn by £15,000 (assuming that the problem cannot be dealt with in any better way).
But ...
... the new rules do not apply where repayment is by way of dividend or other taxable credit.
Does not apply to dividends?
BKD can I ask where you have found in the rules that it does not apply if the repayment is made by way of dividend or other taxable credit? I think I've missed this!
Well spotted BKD
I must admit I had missed that point when looking at the new rules. It does mean they are much less onerous than I first thought.
Detail and wording of legislation
Thanks to BKD for highlighting s464C(5) which does reduce the impact.
However, does this raise a question whether the dividend needs to repay directly rather than be a circulation of cash - i.e. how closely linked does the dividend and the loan repayment have to be?
I see the explanatory note refers to 'application of a chargeable dividend towards the amount of the loan' whereas the legislation refers to 'a repayment which gives rise to a charge to IT...'
I am not sure how I see how a cash dividend paid out to the shareholder and then paid to the company as repayment of the loan fitting the wording of the legislation. The repayment of the loan does not give rise to a charge to IT, but rather the prior payment of the dividend does. This situation does however probably fit the wording of the explanatory note.
We will still have to be careful how we address these issues.
Wrong link, Carnmores?
That takes me to an article on the statutory residence test. Or have I not read far enough?
How does Rebecca B's comments below fit in with this thread?
Just seen in May 9 Taxation in a report on Taxation Live conference:
"Directors’ loan accounts
In Rebecca’s view, the Finance Bill 2013 provisions relating to loans to participators will spell the end of debit balances on the directors’ loan accounts where they are also shareholders.
In particular, she highlighted the provision in new CTA 2010, s 464C(2), which applies when £15,000 or more is outstanding by a participator to a close company immediately before a repayment. If, at the time of the repayment, there is an intention to borrow again from the company, and that borrowing actually takes place, then the amount repaid is ignored for the purposes of the charge under CTA 2010, s 455.
In Rebecca’s opinion, the common practice of treating all withdrawals as debits to the director’s loan account and then clearing them with a vote of salary or a dividend before the nine-month limit in s 455 would fail this test, meaning that tax was due from the company."
Rebecca ...
... appears to have overlooked s464C(5).
Julian makes a good point above. Strictly, payment of a dividend in cash which is then used to clear the loan may not benefit from the subs,5 exclusion. But so long as the credtiing of the loan account and declaration of the dividend are effectively one and the same I don't see any risk there.
Further, though, consider the reason for the exclusion - the purpose is to exclude what would effectively amount to double taxation - s455 tax and income tax on the dividend. I therefore think that even if a cash dividend were to be used there is a good argument that the anti-avoidance should not bite - but as Julian suggests, you would want to be able to demonstrate that the dividend had in fact been declared in order to clear the loan.
Rebecca - if you're reading this, your thoughts would be welcome
.
I have just read 9 May Taxation and have been reviewing closely the changes to s455 etc...
It does seem that RB has not taken account of subsection 5 of s464C. HMRC's explanitory paragraph 20 seems quite clear.
I agree that the subsection 5 might have been worded better, but I don't think that the introduction of the 30 day rule and the Intention rule will have any practical impact for the majority of clients, who normally clear loans/advances by way of divi. (subject to the point about tracking "repayment which gives rise to a tax charge" bit)
.
No.
whist that money sits in his personal account, it is being used by him.
even if you could dress it up as something else, the new chapter 3A "other arrangements" would catch this. After all, a benefit is being conferred upon him.
Unless he paid income tax on the £200k he will be caught. That is the whole point of the new rules.
Intention / Arrangements
Even with the two companies and a year between, it seems to me that HMRC could argue that 'at the time of repayment - a person intended that the new payment would be made' (464C(3)). I know there would be issue of evidence and point might not be taken, but if this was a cycle that went on for a number of years there would certainly be a risk. Seems that you would get the relief initially, but once the next payment was made, it would be withdrawn under 464C(4). The intention itself is not enough as 464C(2)(b) requires an actual payment to be made. I cannot see anything obvious about the effect on interest etc where relief is withdrawn - does this apply from date of second payment or is withdrawal retrospective back to date originally given? I still this being a potential minefield now, particularly when clients do things before speaking to us.