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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: charging provisions

Chapters 3 and 3A, Part 10 CTA10

The main charging provision is in CTA10/S455. For all periods, where a close company makes a loan or advances money to a ‘relevant person’ (see CTM61515) who is a participator or an associate of a participator, CTA10/S455 will apply.

This was sufficient to also charge loans to many, but not all, trusts and partnerships in which company participators were interested, depending on the facts. However, for loans made on or after 20 March 2013 loans to all such partnerships and trustees are put on an equal footing and are now specifically mentioned in the legislation. The legislation specifies that the section applies where the loan is to:

  1. a relevant person who is a participator in the company or an associate of such a participator (CTM61515),
  2. the trustees of a settlement where one or more of the trustees, beneficiaries or potential beneficiaries is a participator of the company or an associate of such a participator (CTM61525)
  3. a limited liability partnership or other partnership one or more of the partners in which is an individual who is -
  • a participator in the company, or
  • an associate of an individual who is such a participator (CTM61520)

Both pre and post 20 March 2013 the wording of the legislation is such that each and every time a company makes a loan or advance to a participator during an accounting period there is a chargeable payment and the legislation will potentially apply. So, for example, where drawings are made from a loan account every month, the charge will apply to each monthly drawing.

However, in practice, HMRC usually only consider the year end position. Thus if there is an amount outstanding at the accounting period end date, it will need to be included on a supplementary page of the company’s corporation tax return and relief for any repayments claimed on the same form. Where the claim cannot be included on a return (if it is, say, too late to be included on the CT600A by amendment or otherwise) a separate claim should be made, for example by submitting a letter to HMRC.

In exceptional cases HMRC may consider the statutory position, looking at each and every withdrawal/repayment in the period and raise charges accordingly.

FA13 also inserted a new Targeted Anti-Avoidance Rule (TAAR) into Part 10, CTA10/S464A. This will apply where a close company confers a benefit (that is not charged by Section 455 or 459) directly or indirectly on an individual who is a participator or an associate of such a participator, CTM61570. Broadly, it is aimed at charging extractions of value from close companies in forms which aim to avoid the CTA10/S455 charge and or avoid/reduce income tax bills of participators.