Director loans hit by s455 hike

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In a measure not included in his much-vaunted business tax roadmap, the Chancellor increased the loans to participators tax rate from 25% to 32.5% with effect from 6 April 2016.

The measure aims to prevent company directors avoiding income tax and NI charges by paying themselves through loans or advances that are not repaid, rather than taking dividends or salary. The charge is commonly labelled by advisers as “s455” after the section of the Corporation Tax Act that applies in these circumstances.

In paragraph 2.42 the Budget Red Book states: “The government will increase the loans to participators tax rate from 25% to 32.5%, keeping it aligned with the higher rate of tax charged on dividend income. The new rate will apply to loans made or benefits conferred by close companies on or after 6 April 2016. (Finance Bill 2016)”

The rate continues to mirror the higher rate of dividend tax at 32.5%, with the changes encompassing loans, advances and arrangements made on or after 6 April 2016.

Commenting on the change tax lecturer Rebecca Benneyworth said she hadn’t anticipated it but could understand why it came about.

“What it’s going to do is mirror the dividend tax charge on that amount if it was taken as a dividend," said Benneyworth.

“Essentially the difference is that the s455 is not actually a tax charge – the company pays it but if the loan is repaid then the s455 tax comes back. But obviously for a lot of people this doesn’t happen.

“It’s really a cashflow thing because I don’t think it actually generates any tax. Technically it’s a loan from the company, but it does just level the playing field. Otherwise you wouldn’t take it all as income, you’d take it as loans because it would be cheaper.”

In an Any Answers thread discussing the measure, AccountingWEB user mabzden commented: “I'll be surprised if there are any changes to the CT600A form. There are problems (ie different rates for different loans), but these issues will only affect [accounting periods] straddling 6 April 2016.”

Ruddles added that although they advise clients not to borrow, “If a shareholder is thinking of borrowing £40,000 in the next few weeks we would advise him to do so before 6 April 2016 - unless perhaps if the company's year-end is 30 April. It may depend on intentions re repayment.”

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17th Mar 2016 10:59


"“The government will increase the loans to participators tax rate from 25% to 32.5%"


So will loans TO the company be able to attract interest at the same rate ?

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17th Mar 2016 21:56

mikewhit, you don't appear to understand this at all.

It is not an interest charge, it is a tax charge, so the answer is no. It isn't lack of reciprocity.

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17th Mar 2016 15:59

Cash Flow problem

I don't advise clients to get involved with s455 tax at all, unless there is no other option, like losses or insufficient profits preventing dividends.  This has to be temporary solution whilst a hole is being dug out of.  Alternatively, profitable businesses where the director has just withdrawn far too much money, get hit with this, usually from a lack of any financial discipline, like ignoring the need to leave money in the company for Corporation Tax, PAYE and VAT.  

When the tax is paid it can only be recovered after nine months from the year end in which it is repaid.  Corporation Tax is due by the end of the ninth month, so the s 455 refund won't be received in time to help settle the bill - bad cash flow management.  For this reason alone, I don't recommend it and I don't recommend it where a bit of financial planning would avoid the problem.

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By cfield
18th Mar 2016 13:34

Easily avoidable

Year end loans can be cleared by book entry within 9 months, which avoids the tax becoming payable even though you still need to file a CT600A. By book entry, I mean salary, dividend, expenses, whatever, being credited to the director's loan account as they arise. It doesn't matter if the director takes those items in cash at the same time. That constitutes a new loan.

In an ideal world, all participator loans would be dealt with like this. They should only ever be temporary stopgaps. Unfortunately, a lot of accountants aren't proactive enough in this area. Obviously it is difficult to stop indisciplined or cash-strapped clients from over-drawing in the first place, but I think far too may CT600As are filed without repayments on.

The 9 month rule  is widely misunderstood. People seem to think that an actual cash repayment is required, not just a book entry.

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21st Mar 2016 12:16


This seems that Directors are being targeted by the conservative government.

They have raised taxes on s455 loans, which in most small business cases are written over to dividends. Then they have attacked the dividend payments themselves. It seems to us here at ITA, that this government would prefer  all small company directors to now become self employed. 

Then on the otherhand, we have compliance picking on the self-employed, stating that they should in turn be employed, and pay more tax etc. 

They can't have it both ways, if you take any advantage of being a Director away, then there will be no small companies to employ all these self-employed, then what are compliance going to do. This will have a massive impact on small businesses, we already have several of our clients in a panic.

Maybe Mr Osbourne need to take a course in accountancy and finance.

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By Exector
21st Mar 2016 15:55

"Easily avoidable" - not so simple

Since the introduction of the anti- Bed & Breakfasting rules.


If you want to "repay " it by so-called book entry & are looking at loans/repayts in xs of £5k/£20K, then that credit has to be taxable to be effective for s.455 purposes if further withdrawals follow. Hence salary or div credits fine, expenses or other non-taxable credit, then not in circs where anti-B&B rules applicable.

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By cfield
21st Mar 2016 16:44

Expenses OK

Exector wrote:

Since the introduction of the anti- Bed & Breakfasting rules.

If you want to "repay " it by so-called book entry & are looking at loans/repayts in xs of £5k/£20K, then that credit has to be taxable to be effective for s.455 purposes if further withdrawals follow. Hence salary or div credits fine, expenses or other non-taxable credit, then not in circs where anti-B&B rules applicable.

Repaying a loan by offset against money the company owes you is perfectly OK. It doesn't matter what form it takes. The B&B rules are to address a different situation entirely, where you pay back the loan in cash and then withdraw the same funds shortly afterwards.

And actually, expenses are taxable until such time as you claim them on your tax return or (under the new rules) your employer decides that they do not give rise to a taxable benefit or require payrolling.

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By Exector
23rd Mar 2016 14:26


I don't think everyone thinks it is as simple and straightforward as you evidently believe eg



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By cfield
23rd Mar 2016 15:39

Never said it was simple

Nothing about tax is simple and I never used that word in my 2 previous posts. I merely said that s455 tax is easily avoided, at least more easily than people think. That's not the same thing.

I've had another look at that thread (I remember mulling over it the first time it came out) and although I accept that section 464C is not as clear as it should be, I really don't think we should agonize over it too much. Not when it comes to expenses anyway.

It is not the incurring of expenses or the preparation/submission of an expense claim that creates an obligation to pay the claimant. It is the authorisation of that expense claim, and in an owner-managed company, that happens at the same time it is credited to the loan account. There is no intervening stage at which it loses its status as an item giving rise to a (potential) charge to income tax.

That's because the director has already given his company a standing instruction to treat it that way, so it happens automatically. No need to wait for the accountant to write it up in the books.

In any case, I don't see the difference between offsetting one debt against another and repaying it in cash. One is as good as the other for s455 purposes. I do accept, however, that if it is a repayment that does not give rise to a tax charge, you need to watch the B&B rules.


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By Exector
23rd Mar 2016 16:03

I think we do need to agonize in some cases

at least a little!

I would refer you to HMRC commentary on the operation of the S.464C (6) exclusion at CTM61642.

Their emphasis is that the repayment itself should give rise to an IT charge (even if no tax payable eg in BR div situation) on the participator to which the original loan relates and they are quite specific on that, to the extent of distinguishing the  circumstance of  a crediting of rent, as that is not in itself per se immediately taxable, just potentially  so as part of a subsequent calculation. Equally in that para  they comment specifically on the open question left at the end of the Aweb thread I linked, to say they do not consider the credit of a dividend previously paid out in cash to the loan account as qualifying for the (6) exclusion as the repayment that it represents is not itself taxable.

So I am not so sanguine as you that the crediting of expenses will undoubtedly qualify as taxable for the purposes of the exclusion, at least from HMRC interpretation of the statute.


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By cfield
23rd Mar 2016 18:33

HMRC Manual not gospel

I would argue with HMRC on their interpretation of section 464C with regard to rent. It seems a bit disingenuous to me, saying that it isn't the rent that's taxable, just the profit on the rent. After all, there wouldn't be a tax charge at all if there wasn't any rent.

We all know the HMRC Manual is not the oracle when it comes to contentious tax issues. I always go back to the legislation myself if there's any room for doubt. I wouldn't take their word for it.

I suppose if the company paid the rent invoice direct to the participator's bank account and he then transferred funds to the company, it would get round that argument. You'd then just need to watch the normal B&B rules.


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