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HMRC internal manual

Company Taxation Manual

Close companies: loans to participators and arrangements conferring benefit on participators: B&B - repayments or return payments made on or after 20 March 2013: general

CTA10/S464C and S464D

This legislation applies to both repayments within CTA10/S458 and to payments which are ‘return payments’ within CTA10/S464B (CTM61570) and which are made on or after 20 March 2013.

Its aim is to ensure that only enduring repayments are to be taken into account in giving Section 458 relief from a Section 455 charge or Section 464B relief from a Section 464A charge, ie it will stop the benefit of bed and breakfasting behaviour.

Rather than directly denying relief for the repayment, it works by dictating how certain repayments and return payments are treated, specifically matching the repayment (or return payment) with a loan/advance in a later period, so that it is not available to relieve a loan made in the first/earlier period.

There are two broad rules which work in the same way, though different time limits and de minimis limits apply to each:

  • 30 day rule (CTA10/S464C (1)), CTM61630
  • Arrangements rule (CTA10/S464C (3), CTM61635

Both use the concepts of chargeable payments, relevant chargeable payments, available amounts and qualifying amounts. The definitions are briefly summarised below:

Chargeable payment is defined in CTA10/S464D (4) and is:

  • any loan or advance which gives rise to a charge under Section 455. This will therefore include amounts for which relief under Section 458, for repayment etc within nine months of the end of the accounting period, would otherwise prevent any tax being payable
  • any amount which becomes chargeable under CTA10/S464A even if relief under S464B for a return payment is otherwise due

Relevant chargeable payment is defined in CTA10/S464C (2) as

  • any chargeable payment which is not repaid within the 30 day period specified in Section 464C(1)

Qualifying amount is defined in Section 464C (5) as the amount of any repayment which has not already been treated as repaying another chargeable payment.

Available amount is defined in Section 464C (4) as an amount of a chargeable payment which has not already been matched with any repayment by other operation of S464C.

The last two definitions are required because in any accounting period Section 464C can apply a number of times and these eliminate any double counting/relieving.

There is a flowchart at CTM61645 which shows the basic application of both rules and the priorities.

In most common bed and breakfasting scenarios the operation of the section will be straightforward as in Example 1 in CTM61630. A loan outstanding shortly before the AP end date will be repaid before the AP end date (or at some point in the nine months after the end of the AP). Shortly after that repayment, there will be a further loan of a usually similar/greater amount which will persist and/or grow until a similar transaction is undertaken a year later.

For exclusions from the operation of Section 464C see CTM61642