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HMRC internal manual

Company Taxation Manual

From
HM Revenue & Customs
Updated
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Particular topics: company dissolution: loans to participators

A company that has ceased business and appears to be seeking or awaiting striking off may suggest that it has made no distributions but merely passed its assets to shareholders on loan.  This may be an indication that the company intends to continue in existence.  Liabilities may arise in respect of loans or the use of assets, - see EIM21000 onwards, as regards directors and higher paid employees and CTM60500 onwards and CTM61500 onwards as regards participators and associates.

Usually, the company will have overlooked CA06/S1012 (property of dissolved company to be treated under bona vacantia) – if a company is struck-off and dissolved any assets belonging to the company immediately before dissolution belong to the Crown.  This provision, and any liabilities in respect of loans etc, should be drawn to the company’s attention.  If the company then agrees that it has distributed or will distribute its assets, CTM36205 and CTM36220 to CTM36240 will be relevant.

If loans to participators etc are called in to allow the company’s assets to be distributed before dissolution, according to what would be the members’ interests in a winding-up, there should be no difficulty.  Any CTA10/S455 tax on close company loans repaid (or released or written off on or after 6 April 1999) will be cleared under CTA10/S458.  However, loans may be set off, cancelled, released etc or the right to recovery may be transferred to one or more shareholders in satisfaction of their rights to share in the company’s assets.  These transactions should be taken into account in measuring the total amount realised by any shareholder in respect of shares for CGT purposes.  Exceptionally, such transactions may also give rise to transfers of value between shareholders, or between shareholders and others.  Liability under CTA10/S463 may arise on close company loans released or written off (CTM61630).

Where money due from a shareholder is not collected but is set against the share of company assets (including the debt), the loan should be treated for CTA10/S458 purposes as repaid up to the amount of the loan or of the shareholder’s share of the assets, whichever is less.

Where loans to participators etc, which are made in an accounting period ending on or after 31 March 1996, are repaid, whether by set off of the shareholders’ assets or otherwise, CTA10/S458 (4) applies to the repayment.  Therefore, if a loan is repaid more than nine months after the end of the accounting period in which it was made, relief is deferred until the due date for the accounting period in which the repayment takes place.  The practical effect of this is that the company cannot dissolve itself under the striking-off procedures until CTA10/S458 relief is due.