Currently when a shareholder receives a loan from a company or where their director’s loan account becomes overdrawn and is still outstanding at the end of a company’s accounting period the loan becomes chargeable to s455 tax, a charge of 25% of the value of the loan which the company pays should the loan not be repaid within 9 months of the end of the accounting period. This charge would then be repaid to the company when the loan is repaid.
Changes within the budget
This rule was made more strict in this year’s budget as from 20 March 2013 where any repayments made of more than £5,000 which is followed within 30 days of further advances to the director/shareholder then the repayment is ignored for the s455 tax charge. This measure was brought in to prevent what is known as ‘bed and breakfasting’
Also introduced in the budget, where the loan is more than £15,000 and at the time the repayment is made there is already arrangements for a new loan to be made then again the s455 tax is still chargeable.
The above measures introduced in March do not apply where the method of repayment of the loan is taxable, so for example a dividend or bonus subject to PAYE.
Over the summer HMRC ran a consultation proposing one of the four following courses of action as a further change to the above changes to the loans to participator regime
- Make no further changes
- Increase the rate of s455 tax from 25% to say 40%
- Remove the right to refund the s455 tax on repayment of the loan, meaning the loan could be chargeable year after year but at a lower rate of say 5%
- Similar to the above, but the charge levied on the average outstanding balance rather than the balance at the year end
However within the Autumn Statement, it was confirmed that as a result of the consultation, for now at least there will be no further changes to the rules.