S455 tax on existing loans on becoming a participator

S455 tax on existing loans on becoming a...

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An employee currently has a loan of around £20k from his employer.  He is about to be appointed a director and 50% shareholder.

Presumably S455 tax will be due on the loan at the end of the current accounting period if the loan is still outstanding at that point.  Presumably there is no retrospective assessment to the point when the loan was first taken out (in previous periods)?

The company is planning to declare a dividend shortly after the appointment of the new director so his loan will be cleared with his share of this dividend.  On that basis, presumably no S455 liability will arise unless HMRC are able to assess him with a retrospective assessment?  I can see no basis for a retrospective assessment but wanted to make sure prior to advising our client.

Thanks in advance for any responses.

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Euan's picture
By Euan MacLennan
13th Oct 2015 18:26

Was he a shareholder when the loan was advanced?

No.

Therefore, there is no tax due under s.455 CTA 2010 if he subsequently becomes a shareholder, let alone backdated to when the loan was advanced.  In the same way, a company is not entitled to relief under s.458 for s.455 tax paid on a loan to a shareholder at the time who subseqently ceases to be a shareholder.

Thanks (2)
By Alastair Johnston
14th Oct 2015 09:46

Agreed, no, but Euan's obiter is wrong


The S455 charge only applies when a close company makes a loan to a participator.  Status of both parties is considered only at the time of the loan.

Note HMRC's view that the exception for a loan of £15,000 or less to a full time employee who does not have a material interest in the company is withdrawn if the employee acquires a material interest.  (CTM61540). The absence of any similar commentary about S455 charges in general on a borrower becoming a participator implies that no such rule applies generally. 

However I disagree with Euan about the S458 relief. S458 applies where a loan by a close company has given rise to a S455 charge.  S458(2) states that relief is to be given if the loan is repaid.  There is no rule about the status of the company or the borrower at the time of repayment.  Relief can always be reclaimed once the loan has been repaid, released or written off. 

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Replying to Duggimon:
Euan's picture
By Euan MacLennan
14th Oct 2015 10:50

You misunderstand me

Alastair Johnston wrote:

However I disagree with Euan about the S458 relief. S458 applies where a loan by a close company has given rise to a S455 charge.  S458(2) states that relief is to be given if the loan is repaid.  There is no rule about the status of the company or the borrower at the time of repayment.  Relief can always be reclaimed once the loan has been repaid, released or written off. 

Of course, s.458 gives relief when a loan to a (former) shareholder is repaid or written off, but my point was that there is no relief at the time that a shareholder ceases to be a shareholder.

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By Alastair Johnston
14th Oct 2015 10:59

Sorry Euan!

.

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