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HMRC internal manual

Company Taxation Manual

Close companies: loans to participators: unpaid share capital

It was HMRC’s long held view that where share capital had been issued ‘called up and fully paid’ (or only part paid) but remained wholly or partly unpaid there was a debt due from the shareholder to the company for the value of the unpaid amount from the shareholder and S455 should apply to that debt.

The First Tier Tribunal found in RKW Ltd v HMRC TC/2011/05945 that S455 should not apply in such circumstances. Since the date of this judgment (30 January 2014) it should therefore not normally be argued that a S455 charge is due on unpaid share capital. Cases involving earlier periods should be referred to CTIS (Technical).

There is still some scope to apply the legislation where it is believed a participator (or associate of a participator) has used unpaid share capital to extract assets, profits or other value from the company without a charge to tax. Although the judgment left the door open to a possible S455 charge under such circumstances, it is more likely that CTA10/S464A would apply where there has been such an extraction of value.

Targeted Anti-Avoidance Rule

The FTT decision considered years prior to the introduction of the TAAR in CTA10/S464A (CTM61570). If a shareholder obtains any kind of benefit by using unpaid share capital the TAAR should be considered. Before arguing that the TAAR might apply in any particular case you must refer the case to CTIS (Technical).