CH 20 - Close Company Implications

Question 1

To whom s.455 CTA 2010 applies?

Answer 1

on o/s loans made to;
- a shareholder
- to a partnership in which one of the partners is a participator or an associate of a participator,
- to a trust of which a participator or associate is an actual or potentential beneficiary

Question 2

How is established an amount of the loan taken by a participator (subject to s.455)?

Answer 2

Lower of the amount o/s on:
- last day of accounting period, or
- normal due date (9mts+1day post AP)

Question 3

What is ‘bed and brekfeseting’ a loan?

Answer 3

when loan is repaid of £5,000 or more and within 30 days is borrowed again
or
if the amount o/s before repmt is at least £15k and there are arrangments or an intention to draw further loan, regardles if acutally drawn, no relief from s.455 tax is issued. (CTA 2010, s.464C)

CTA 2010, s.464C does not apply to a repayment of a loan which is made out of income chargeable to income tax.

Question 4

What are consequences of writting of a participator’s loans for company & participator?

Answer 4

Participator will;
- will be liable to income tax as though the loan was w/off as dividend
- if also an employee, will be subject to Class 1NIcs (primary)

Company will;
- reclaim the s.455
- w/off amount is not tax deductible
- if also an employee, will be subject to Class 1NIcs (secondary) tax deductable expense