Contributors on AWeb have often pointed out the rather simplistic way that repayments of s.455 loans are worked out. For example, dr balance on DLA at year end of £20k, further £20k advanced a month later and then same amount repaid a month after that. Result: £20k dr at year end qualifies for relief from s.455 charge of 25%.
From my reading of the Budget notes, there is to be a tightening up of this type of arrangement:
"The repayment provisions are amended to deny the relief, subject to de minimis limits, where repayments and re-drawings are made within a short period of time of each other, or there are arrangements (or there is an intention) to make further chargeable payments at the time the repayment is made (and there are subsequent re-drawings)."
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My take on this
is simply that they are enacting HMRC's existing stance on bed & breakfasting. When I first read it, I wondered if they were targetting the 'reverse' mischief suggested above, whereby there is additional borrowing from the company and then that borrowing used to repay the origianl debt, ie on a FIFO basis, before the 9-month deadline. However, the Budget notes specifically refer to repayment and subsequent re-drawing. We'll need to wait, as always, for the detail.
Details already available
http://www.hm-treasury.gov.uk/d/Loans_from_close_companies_to_their_participators.pdf
A new 30 day rule, along with a more encompassing intention test if the sums are over £15k
..which deny the relief if within a 30 day period repayments of more than £5,000 are made to the close company in respect of amounts (either a loan ...) which have given rise to a charge to tax under Part 10 and amounts are then redrawn either through a loan or advance of money from the close company ...
...even if the 30 day rule does not apply to deny relief, relief will be denied if there are amounts .....outstanding amounting to at least £15,000 and at the time of a repayment there are arrangements, or an intention, to redraw an amount....
Red Leader's question is not B&B
I agree with BKD, in RL's example the advance is followed by another advance and then a repayment. I don't think the new B&B provisions covers this.
Thanks for the link
Still doesn't seem to deal with the situation outlined above (unless of course there are subsequent withdrawals caught by the new legislation).
EDIT - sat in draft while Paul posted his comment :)
Another issue on the new legislation
Loans to Scottish partnerships are not normally subject to s455 charge as per current HMRC guidance. Proposed legislation would appear to catch those partnerships. Any thoughts?
Scottish Partnerships
@BKD
Please can you point me at the HMRC guidance re Scottish Partnerships?
Is this on the basis that they are a separate legal entity?
Out of curiosity what happens to the s455 on a loan to an English Partnership if it becomes a Scottish one?
CTM 61515
Never thought about a partnership changing its nationality. But I would have thought the s455 charge applies (or doesn't) depending on the status at the time of making the loan. Subsequent change in partnership status would not IMO change the status of existing loans
A Scottish Partnership is a legal person
However HMRC appear to accept that this fact shouldn't put them at a tax disadvantage.
Scottish partnerships were actually at an advantage for s455 purposes. But HMRC have confirmed that the new anti-avoidance will catch all partnerships.