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Loans to Participators Tax on Accounts

Loans to Participators Tax on Accounts

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Hello all
I am completing accounts for a company where the director's loan is overdrawn by over 10k.  The Corp Tax of the company is 3k and since the director's loan account is overdrawn, a further s455 tax of £3.2k is due.

My question is what should be reflected on the accounts in the balance sheet.  Should it be just the corporation tax liability or the corp tax and s455 tax liability?
Look forward to your answers

Replies (6)

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By johngroganjga
17th Aug 2019 22:37

My preference is only to recognise S455 tax as an asset when it is paid. Some will say that you should recognise both the liability to pay it and the asset in the previous balance sheet, but I consider that to be pointless grossing up of both debtors and creditors by the same amount.

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By Russell Huk
17th Aug 2019 23:47

Thanks. So you would only take the actual corporation tax in the P&L and B/s and when payment for s455 tax is made, you would allocate that to an asset account - when the refund is eventually issued, it would net off that asset account.

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Replying to Russell Huk:
By johngroganjga
18th Aug 2019 00:01

Yes that is what I meant.

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Psycho
By Wilson Philips
18th Aug 2019 07:54

I usually follow John’s treatment and recognise the asset only once the tax is paid. However, I do not disagree with the alternative treatment:

Section 455 imposes a liability in respect of a balance at the period end. Relief against that liability is given only if the loan is repaid within 9 months. It follows that if at the date of signing the balance sheet the loan has not been repaid it would not be incorrect to provide for the liability (and corresponding asset).

In accounting terms, it’s little different to the situation where the company has received an invoice for 3 months rent in advance - one would normally recognise both the creditor and the prepayment.

As John says, though, it makes absolutely no difference to the net position in the accounts.

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RLI
By lionofludesch
18th Aug 2019 09:56

I disagree slightly.

I definitely wouldn't include s455 tax until paid - or, rather payable - because, until nine months have elapsed, you can't be sure that there is any.

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Replying to lionofludesch:
Psycho
By Wilson Philips
18th Aug 2019 10:28

I’m only playing Devil’s Advocate here. You could just as easily say that until 9 months have elapsed you don’t know if the liability imposed by the CT legislation has been relieved.

As I say though I’m not arguing the point. In my view neither treatment is incorrect.

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