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Loan to Participator & Associates

What is a Participator and or an Associate

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Hi, 

Husband (40%) and Wife (52%) own around (92% of a limited company "A".

They recently se-up new limited company "B" with two other individuals. The husband owns (45%) of new limited company and wife owns (5%) on new limited company.

They made a loan of £30,000 to limited company "B" from their existing limited company "A".

Is this considered a loan to a Participator or Associate.

 

Thanks

Replies (12)

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By Accountant A
28th Feb 2019 14:48

I assume the terms are defined in the legislation. Where have you looked so far?

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By Balance_Sheet
28th Feb 2019 16:34

I have been looking online but could not find the Tax definition of a participator or associate.

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By Coops
28th Feb 2019 17:35

The definitions are at s448 and s454 CTA 2010.

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By johngroganjga
28th Feb 2019 14:56

Not unless company B has made a loan on to a participator in company A who is not also a participator in company B.

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Replying to johngroganjga:
Psycho
By Wilson Philips
28th Feb 2019 16:09

I assume that you have section 459 of CTA 2010 in mind, John - in which case it may not matter whether the person is a participator in B or not.

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By johngroganjga
28th Feb 2019 16:37

Surely, if B makes a loan to one of its own participators it is caught by S455 in any event, so there is no avoidance of the type that S459 is meant to deal with.

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Replying to johngroganjga:
Psycho
By Wilson Philips
28th Feb 2019 17:09

It would depend on the circumstances and whether those circumstances are aligned with section 459(1). There is no special exclusion from section 459 for cases where the onward loan would otherwise give rise to a charge under section 455 for that second company. (And HMRC's guidance suggests that they clearly see such straightforward arrangements as falling within the scope of section 459.)

Although section 459 is generally regarded as an anti-avoidance measure, nowhere does it say that it applies only where avoidance is in point.

However, I agree that in practice HMRC are not going to be too bothered as to which company pays the section 455 charge provided that it is in fact paid. There's little doubt in my mind that they'd go after A if B were to default (provided that they could demonstrate the existence of the arrangements referred to in section 459(1)).

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By johngroganjga
28th Feb 2019 17:53

So what stops the double tax charge arising then?

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Replying to johngroganjga:
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By Vile Nortin Naipaan
28th Feb 2019 18:01

The wording of the legislation, if you actually read it John. s 459 only applies in a situation where no charge arises under s 455.

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Replying to Vile Nortin Naipaan:
Psycho
By Wilson Philips
28th Feb 2019 19:23

It’s long been a source of debate - whether the “no s.455 charge” means no s.455 charge at all or only in respect of company A. HMRC seem to think it is the latter and I agree - because of the positioning of the words. The interpretation would be different if the reference to no s.455 charge was placed at the end.

But it is certainly far from clear and I find section 459 rather poorly written. If you follow the wording you could have a full section 455 charge if A were to lend £100000 to B and then B made a payment of £1 to the individual. That can’t be correct and the intention must surely be to catch forward payment of the original loan amount, but that is not what it says.

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Replying to Wilson Philips:
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By aland
04th Mar 2019 20:35

While interesting, I don't feel the the debate on the merits of sect459 is relevant to the OP's question, to which John answered 'only IF there was a further loan by B ............', which there wasn't as far as we have been told.

The scenario put is surely just a case of a commercial loan between 2 limited companies - no participators are receiving a loan even if the companies have shareholders in common. Hopefully, appropriate Board minutes will have been written to document the company to company nature of the loan.

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By Tax Dragon
05th Mar 2019 07:13

We're not told the loan is commercial, either.

John's "ONLY if..." was wrong; it was right to say so.

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