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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Close companies: loans to participators and arrangements conferring benefit on participator: general

CTA10 Part 10

CTA10/S455 applies to loans/advances made on or after 1 April 2010. ICTA88/S419 applied to loans made before that date. The 2010 changes did not change the substance or application of the previous legislation.

Schedule 30 Finance Act 2013 made changes to CTA10/S455 from 20 March 2013 particularly for loans involving partnerships.

FA13/Sch30 also made major changes to CTA10/Part 10. In particular:

  • where there are arrangements whereby value is extracted from close companies otherwise than by way of a loan/advance, CTA10/S464A applies a charge equivalent to CTA10/S455;
  • the abuse of the repayment relief rules, commonly known as bed and breakfasting is countered by CTA10/S464C

In this page any reference to Section 455 includes Section 464A

Broadly, where a close company (either directly or through an intermediary):

  • makes any loan,
  • advances any money to, or
  • confers a benefit on,

an individual who is a participator (or an associate of a participator) in the close company, then the close company is due to pay tax under CTA10/S455. The exception to this (in the case of a loan or advance) is that the loan or advance was made in the ordinary course of the close company’s business and that business includes the lending of money (see CTM61520). Section 455 applies only if the company is a close company at the time the loan or advance is made.

Although the company is charged to tax under CTA10/S455 ‘as if it were an amount of CT…’, this does not mean a loan or advance is, by itself, a distribution of the company or income in the hands of the recipient.

As regards:

  • the tests for determining whether a company is a close company, see CTM60100 onwards,
  • the meaning of loan or advance, see CTM61535,
  • the definitions of participator and associate of a participator, see CTM60107 onwards,
  • the exclusion of certain loans to directors or employees, see CTM61540,
  • the meaning of ‘confers a benefit’, see CTM61580,
  • reciprocal arrangements, see CTM61550 to CTM61555,
  • extension of CTA10/S455 to loans by controlled companies, see CTM61700 to CTM61750

Information powers

The general information powers in FA08/SCH36 apply to CTA10/Part 10.

Rate of Section 455 tax

The rate of tax to be applied to CTA10/S455 liability for accounting periods ending on or after 6 April 1999 is 25%. If details are required of the rates for earlier periods, contact CTISA (Technical).

The company must include any Section 455 liability in its CTSA return, see CTM98200 onwards. As regards the:

  • assessment, collection, etc of amounts within ICTA88/S419 (predecessor of CTA10/S455) for loans made in accounting periods ending before 1 July 1999 see COM23130 onwards
  • due date of payment of tax and application of CT provisions - see CTM98200 onwards

The charge applies to a debt created or loan made in an accounting period (AP) rather than the total amount outstanding at the end of the AP (although the two amounts may well be the same, particularly in the first AP). So, where a loan of £10,000 is made during AP1, tax under S455 is due of £2,500. Where a further £5,000 loan is made in AP2, taking the total debt to £15,000, the tax due for AP2 is £1,250 (£5,000 @25%) because tax is only due on the new loan, not the total outstanding. Overall, tax on £15,000 has been paid - but only once.

General points

Loans made on beneficial terms to a participator (or an associate of a participator) who is also a director or an employee may give rise to liability on the individual under the earnings from employment provisions. This is in addition to any charge on the company under CTA10/S455 (see EIM26100).