Director's Loan Account

Director's Loan Account

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We have a client who is resigning as a director from a company where he has a £25,000 over drawn loan account, the loan has been created this accounting year and no Section 455 has been paid (not yet due, accounting year end 30th November). He will also no longer be an employee and the company is not a bank or similar (does not grant commercial loans). Should he resign with 9 months of the accounting period end is the section 455 tax payable.

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Euan's picture
By Euan MacLennan
19th Dec 2013 11:04

What has being a director got to do with it?

Tax under s.455 CTA 2010 applies to loans made by a close company to a participator. If your client was a shareholder at the time that the loans were made to him, s.455 tax is payable, regardless of whether he subsequently ceases to be a shareholder, unless the loan is repaid within 9 months after the year-end.

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By johngroganjga
19th Dec 2013 11:17

Agree with Euan, but just adding a practical note that if he is resigning presumably foremost among the severance terms being discussed will be the arrangements and timetable for him to  repay his loan.

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By CW2012
20th Dec 2013 11:36

The director (with the o/d loan account) has never had any shares, the remaining director has 100% of the share capital and is the soon to be ex marital partner who is keen to get the £25k settled. Is there a relationship here for sect 455 tax purposes.

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By johngroganjga
20th Dec 2013 11:54

Yes I think that the spouse is an associate of the participator until the decree absolute, so S455 applies to the loan if it is not repaid.

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Euan's picture
By Euan MacLennan
20th Dec 2013 13:36

Definitely

A spouse is defined as an associate of a participator by s.448(2)(a) CTA 2010 and as the s.455 charge applies to loans to a participator or associate, s.455 tax will be payable as the "soon to be ex marital partner" must have been a spouse when the loan was advanced.

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By CW2012
06th Jan 2014 15:43

Director's Loan

Thanks for the replies, 25% it is then.

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