Debt and return pursuit: miscellaneous charges: assessments under section 419 ICTA1988
When a close company advances money to a participator in the company, the company is due to pay tax on such advances under S419(1) ICTA 1988 for the accounting period (AP) in which the advance was made.
When the participator repays the whole, or part of the advance for that accounting period (AP), or (after 6 April 1999) the company releases or writes it off, the company is entitled to relief under S419(4) from the S419(1) charge. Repayment of the advance may be made at any time.
Advance wholly repaid during the AP
You will not see any of these cases. This is because the company does not need to report the advance on the company tax return.
Advance wholly repaid earlier than 9 months and 1 day after the end of that AP
The company has to report the advance in its tax return. In these cases the company claims relief from the S419(1) tax charge and gives effect to it in its Self Assessment. This is because the advance was repaid before the normal due date of that AP, that is nine months and one day after the end of the AP.
Interest is not chargeable.
Advance repaid more than 9 months after the end of the AP in which it was made
The company has to report the advance in the company tax return and include it in its Self Assessment. The company cannot get relief until the normal due date, that is 9 months and 1 day after the end of the AP in which the advance was repaid. If the company has not included the advance in its Self Assessment a S419 tax charge is raised.
The company still has to pay any section 419 tax even if the loan is repaid, etc before the company delivers its return. Do not accept any objection from the company that they do not have to pay the full S419(1) charge. The most likely objections are that the company believes that relief will be given, or because they will send proof that the loan has been repaid. Collection should proceed. You will need to consider whether a late payment interest charge is necessary.
If the company insists no charge is payable contact the Service Office for advice.
Interest is due only where the repayment of the loan or advance took place more then nine months after the end of the AP in which it was made. The reckonable date for interest is nine months and one day after the end of the AP in which the loan was made.
You will need to know in which financial year the loan was made to the participator in order to calculate the reckonable date for interest. Send the Service Office a memo headed ‘ENFORCEMENT PROCEEDINGS - IMMEDIATE’ asking for the information.
S419 tax paid before the loan/advance is repaid, etc
If the company pays the tax as part of its Self Assessment, or as a result of HMRC action, before the loan/ advance is repaid, or (after 6 April 1999) the company releases or writes it off, apply the usual interest rules for late payment. So, if the company pays the S419 tax before the normal due and payable date, you do not charge interest. If the company pays the tax later you charge interest.
If the company is due to pay S419 tax and other corporation tax but does not pay in full, assume that it is S419 tax that the company has not paid.
S419 tax paid after the loan/advance is repaid, etc
If the company pays the tax as part of its Self Assessment, or as a result of HMRC action, after the loan/ advance is repaid, etc, do not apply the usual interest rules for late payment. Late payment interest in this circumstance runs from the due date of the AP in which the loan/ advance was made until the earlier of
- the date the company paid the tax, and
- the date the loan/ advance is repaid, etc.
If the company is due to pay S419 tax and other Corporation Tax but does not pay in full, assume that it is S419 tax that the company has not paid.
The Service Office should tell you when they know that a participator has repaid (or the company has released or written off) a loan/ advance, but the company has not paid the tax.
Objections to interest
If an agent or company complains that an interest charge is excessive because the loan/ advance has been repaid, released or written off, check with the Inspector. If the Inspector confirms that the loan/ advance has been repaid, etc, recalculate interest to the date the participator repaid the loan/ advance. (You do this even if relief cannot be given at that stage).