Client had an overdrawn DLA balance of say £200k at 31 March 2014. This has increased to £260k at 31 March 2015. S455 tax was paid on the £200k and we appreciate an additional charge will be due on the £60k increase. However, if we vote a dividend today for £60k and credit this to the DLA, will the March 15 S455 tax be avoided, even though it is highly likely the director will have borrowed more money since April 2015 i.e. the dividend goes to clear the earliest debt first?
Thanks
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FIFO
Yes it goes against the earliest debt first, unless of course there is a specific agreement to the contrary between the company and the debtor.
Once upon a time it was that simple.
However, even at that time the £60K dividend would have cleared part of the earlier £200K borrowed, rather then any of the later £60K, with the effect that you would have to wait until the CT due date to claim a refund of the section 455 paid for the 31/3/14 period.
Now it is more complex with the bed and breakfasting rules, but provided the "repayment" is made by dividend (as you suggest), taxable on the participator, the bed and breakfasting rules cannot apply.