too obvious so must be a flaw

too obvious so must be a flaw

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Company A in partnership with individuals B and C who also own company A. 90% profit allocated to company A thereby taxed at corporate rate. However 100% profit drawn by B and C so the balance sheet of the partnership shows hugely overdrawn accounts for B and C balanced by substantial credit balance due to company A. This allegedly gets around the issue of overdrawn loan accounts in company A and/or higher rate tax for B and C whilst ensuring that 90% of profit is taxed at company rate. That would naturally go on the CT600 of the company and be taxed accordingly but the blank I have is company accounting and whether that would this create an issue under s455 etc for sums due from the partnership to company A. Any thoughts would be welcomed as this would otherwise appear a rather obvious and simple way of circumventing overdrawn loan account issues whilst achieving minimum tax rates.

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By johngroganjga
02nd May 2013 16:55

I have seen this done as well, and when I last looked into it, which was some time ago, I satisfied myself that the company's loan to the partnership was not caught by S455 or the interest BIK provisions. 

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By Steve Kesby
02nd May 2013 17:01

Yes

Isn't that one of the reasons they're changing the law?

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By User deleted
03rd May 2013 08:23

Agreed, Steve!

Pembo - read Finance Bill 2013!

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By pembo
03rd May 2013 11:07

Thanks guys

Knew they were clamping down on bed and breakfasting but had not come across this particular scheme before. Pretty clear in the Act that this is exactly what they are clamping down on !

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