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What is a repayment for the purposes of Sec 455

When is a sec 455 debt repaid? Is the receipt of and banking of a cheque 'repayment' of the debt

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The situation was that a Sec 455 debt had to be repaid by the 29th February 2016. For a number of reasons which aren't relevant the debtor couldn't pay the money before the 29th February. The Company received the cheque on the 29th February and banked it the same day by using the bank's Fast Pay service. According to the bank the Fast Pay envelope was not opened until after close of play on the 29th and so the cheque wasn't credited to the Company's account until the 1st March.

The Inspector of Taxes is adamant that the loan wasn't repaid until 1st March when the cheque was shown on the Company's bank statement.  He comments that 'the money was not in the Company's control until the bank debited the the money from the debtors account and credited it to the company's (account)'

His argument is that there are any number of reasons why the cheque might not have cleared which is true but it did clear and even had it appeared in the Company's account a day or so earlier there might still have been reasons why it wouldn't have cleared.

Evidence of the above has been provided by the bank but the Inspector won't move. Does anyone have any ideas or had a similar situation?


Replies (8)

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By Ruddles
22nd Feb 2017 17:58

I have an idea - tell your client to either stop drawing money that isn't his or don't leave it until the last minute to deal with it.

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By Dick Stastey
22nd Feb 2017 17:10

However, if the cheque was received on 29 February, then the Inspector is wrong, and I can point you to the place in HMRC's manuals to refer him to for a small fee. Perhaps £10,000 + VAT would cover my effort.

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Replying to Dick Stastey:
By tedbuck
23rd Feb 2017 11:08


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By JCresswellTax
22nd Feb 2017 17:12

But there is actually no proof (other than the word of the director which counts for nothing) that the company actually received the funds on the 29th!

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Replying to JCresswellTax:
By tedbuck
23rd Feb 2017 11:10

Well there was confirmation from the bank that the fast pay box was opened just after the bank closed on the 29th which we have in writing.


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Hallerud at Easter
22nd Feb 2017 17:48

The catch here is do you not need to show repayment rather than merely paid , these I think may well not be the same point in time in the eyes of the law.

There is case law that supports the fact that the issuing of a cheque allows a debt to be considered paid providing the cheque is subsequently honoured, however I am not sure if that assists if 458 requires the debt to be repaid, which is, I believe ,a differently defined point in time, accordingly I am not sure you can rely on cases re payment, and the courts interpretation of same re cheques, to argue repayment.

Notwithstanding you might want to have a dig around for cases re cheques issued and fire them at HMRC, you never know.

Here is one:

Dyson LJ followed the Court of Appeal’s ruling in Homes v Smith (Court of Appeal, unreported, 2 February 2000), in which Lord Woolf, master of the rolls, set out the law as to when payment by cheque is deemed to have taken place. In that case, Lord Woolf held that ‘the general position in law as to the payment by cheque is clear. Where a cheque is offered in payment, it amounts to a conditional payment of the amount of the cheque which, if accepted, operates as a conditional payment from the time when the cheque was delivered… If the cheque is not met on presentation, the payment is subject to a condition subsequent which means that the sum which was due becomes due once more’.

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Replying to DJKL:
By tedbuck
24th Feb 2017 15:31

Thanks DJKL,

It sounds worth giving a try but I think you are right in that 'repaid' is the crucial thing.

We will see


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By stepurhan
24th Feb 2017 15:42

What amount is involved here?

Because s455 is a temporary amount that is refundable. Does the effect on company cash-flow of this refund being delayed for a year outweigh the costs of pursuing this to tribunal? If the inspector won't move despite the bank evidence, I can see this going that far.

Whilst you are correct the reasons for not being able to repay earlier are not strictly relevant, this still seems to be a problem of the client's own making.

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