S419 penalties

S419 penalties

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2005 CT return submitted, no loans declared as believed dla not overdrawn.

PAYE compliance reveiw all fine except turns out dla is overdrawn, realise tax is due at 25% as nothing was done to correct this as not aware, has now been corrected however.

I realise there will be interest on the liabilty but wanted to know if this would attract a penalty and if anyone had any idea what I can expect.

I have read somewhere that a penalty will be imposed until the loan is repaid, again can anyone help me with this.

Thanks in anticipation and Happy Easter

LHP
Laura

Replies (4)

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Euan's picture
By Euan MacLennan
09th Apr 2007 11:14

Refundable penalty ?
I think not.

S.419 tax is payable if a loan exists at the year-end and has not been repaid within 9 months. The tax is refunded 9 months after the end of the year in which the loan is repaid. If the tax has never been paid over, interest will be charged on the tax for 1 (or 2, 3, etc.) whole years.

A penalty may be imposed for the failure to pay tax when due - in the same way as when an IT or CT enquiry reveals unpaid tax from an earlier year. Similarly, the penalty is subject to mitigation for co-operation and for (lack of) significance and intent. The Revenue usually considers s.419 tax to be fairly insignificant because it is refundable and if your client repaid the loan as soon as it was detected, he has co-operated well. If the client genuinely believed that the loan was not overdrawn, it wouild demonstrate no intent to defraud the Revenue, but might open the client to the accusation of negligence or at least, carelessness. In the unlikely event of a penalty being imposed, it will not be refundable along with the s.419 tax itself.

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By AnonymousUser
10th Apr 2007 20:08

s419
Euan thanks for your help. Just to make it clear in my mind this account was overdrawn after 9 months. Year end was December 2005 so when would the tax have been due, surely not until this years CT return was completed, because when the 2006 return was completed how would we know what the position was 9 months later unless the return was completed at last minute.

Year End December 2005
Overdrawn Acc at year end 14091
At 1st October 2504 overdrawn

When would the 2504 have to be declared

Thanks again

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By frauke
10th Apr 2007 22:03

mmmmmmm
I always understood that the loan account had to be paid off in full for the initial amount of S419 tax not to be due. This is to stop directors from reducing the amount just so they don't have to pay the tax and then borrowing it back the next day. So the 1 Oct balance would be ignored for this reason.

The S419 tax due is based on the balance o/s at year end. If the 2006 year end loan account is lower, then a rebate will be due on the difference after paying 25% on the y/e 2005 balance.


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Euan's picture
By Euan MacLennan
11th Apr 2007 11:49

I don't agree with Frauke
s.419(4) says that relief shall be given where the loan or advance or any part of it is repaid to the company. s.419(4A) says that where the repayment of the whole or any part of a loan or advance occurs on or after the day on which the tax becomes due, relief shall not be given under (4) at any time before the expiry of 9 months from the end of the accounting period in which the repayment is made.

By elimination, a partial repayment within 9 months of the end of the period in which the loan is made is effective in reducing the tax payable.

So, Andrea, the s.419 tax due in your case on 1st October 2006 is 25% of £2,504. You disclose the loan of £14,091 in section 1 of the CT600A, the repayment of £11,587 in section 2, £14,091 in section 4 and 25% of £2,504 in section 5. You do not have to file the CT600 for the 2005 year until 31st December 2006, although you would want to calculate the tax by 1st October. The client can repay at any time in the 9 months, but in your case, I would wait until the last minute to check what he had actually repaid.

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