HMRC internal manual

Enquiry Manual

EM8565 - Close companies: CTA10/Sections 455 and 464A (loans to and arrangements conferring benefit on participators): bed and breakfasting



Section 455 and S464A are essentially an anti-avoidance provision creating a temporary tax charge designed to dissuade participators and their associates from extracting funds from the company other than as remuneration or dividends.

Some participators may arrange a temporary repayment of the loan or the benefit conferred to try to circumvent a Section 455 or section 464A liability: the extracted funds or the benefit conferred are repaid and withdrawn the following day or shortly thereafter. Often these “bed and breakfast” transactions are carried out around the end of the accounting period to prevent the loans etc appearing on the company’s Balance Sheet but it may also be done around the date which is 9 months after the end of the accounting period as that is the trigger date for liability to the charge.

Where you suspect bed and breakfasting of loans or benefits conferred you need to establish the facts. You should seek evidence that repayment took place and that any book entries reflect genuine underlying transactions. CTIS (Technical) can advise on the information to be obtained. If there is no such evidence you should contend there is a Section 455 or Section 464A liability, or challenge a claim for relief under Section 458 or Section 464B, on the grounds that viewed realistically no repayment of the loan was made or no return payment made.

Where you have cause to doubt that the repayment arrangements were intended to achieve genuine repayment of the loan or benefit conferred you should submit cases at an early stage to CTIs (Technical) where bed and breakfasting is disputed and a contentious appeal may result. They will consult the Anti Avoidance Group (AAG) and advice will be given on the various arguments to run in appropriate cases.

For repayments or return payments made on or after 20 March 2013 there are specific legislative provisions designed to counter bed and breakfasting. Please refer to the Company Taxation Manual (CTM61615) where you want more guidance on bed and breakfasting and CTM61625 for the new provisions.

You should consider penalties for inaccuracies when a temporary repayment arrangement is successfully challenged. This could be because of the incorrect accounts where the bed and breakfasting occurred around the accounting date, on the grounds that the Balance Sheet was carelessly or deliberately misleading. Where the loan was on the Balance Sheet but was claimed to have been repaid within 9 months of the end of the accounting period there could be a carelessly or deliberately incorrect claim for Section 458 or section 464B relief.