Dealing with directors loan accounts HMRC has tightened its grip on section 455 loans to owner managers. Section 455, Corporation Tax Act 2010 (CTA 2010) is a key anti-avoidance weapon for owner-managed companies. Without it, owner managers could easily avoid a tax charge by arranging for ‘their’ company to lend them funds (as opposed to paying a ‘taxable’ bonus or dividend). However, s455 levies a tax charge, equal to 25% of the advance or loan, where a close company makes a loan to a participator (ie shareholder or loan creditor) or their associate (eg spouse, parent, grandparent, child, grandchild, brother or sister). In most cases, the s455 tax liability falls due nine months after the end of the accounting period in which the loan is made. However, if the company pays its tax under the quarterly installment payment regime, any s455 liability must be factored into its installment payments. In all cases, the company is able to recover the s455 tax if and to the extent that the loans are repaid. In the context of owner-managed companies, these loans will invariably be directors’ loan accounts (DLAs). Many owner managers tend to use their company as a bank by drawing amounts for their personal spending and other outgoings. There is no problem with that so long as these items are ‘debited’ to the loan account rather than being charged against profits. Some owner managers also take ‘advances’ or ‘drawings’. Particular care should be exercised here, especially where such amounts are taken on a regular basis. This is because HMRC may try to tax these ‘advances’ as earnings under PAYE. It is generally recommended that appropriate loan documentation and board minutes evidence such amounts.
Posted on: Mon, 06 Oct 2014 09:38:56 +0000
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