Ken Moody explores the scope of a sometimes overlooked provision in the private company loans to shareholders rules, which could give rise to an unexpected ‘loan’ to the Treasury.
HMRC does not like private companies lending money to their owner-managers, and there is a raft of provisions aimed at discouraging such debts – from benefits-in-kind rules to the ‘quasi-distribution’ provisions in CTA 2010, Pt 10, Ch 3, which kicks off with the notorious section 455.
If a loan remains outstanding for more than nine months following the company’s year end, CTA 2010, s 455 requires payment of notional corporation tax but at the dividend upper rate (currently 33.75%) rather than at the corporation tax rate. The tax is, however, repayable as and when the debt is repaid, or (at the expense of an income tax charge) is released or written off.
