HMRC Cracking down on Loans from Companies

Legislation will be implemented to counter arrangements under which close companies seek to avoid the charge to tax under section 455 (formally section 419).

Section 455 tax is applied when a person who possesses, or is entitled to acquire, share capital of a company has a loan from the company which remains outstanding at the end of the accounting period. The charge is equivalent to 25% of the amount of the loan or advance and the company can claim relief for any s455 tax payable if the loan is repaid to the company.

The new legislation has been implemented with immediate effect in order to prevent bed and breakfasting whereby loans are repaid simply to avoid paying the Section 455 tax but very quickly afterwards reinstated. The new rules will look to ensure that in these circumstances tax is still payable even though the original loan has technically been repaid.

Due to these changes the cash flow of the company could be greatly affected each year. If you would like further assistance regarding how this change affects your company, please contact Andrew Knott who would be happy to advise you further.

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