Peter Rayney looks at the potential 33.75% tax charge that can arise on many management buyout deal structures.
The close company loan to participator tax charge (in CTA 2010, s 455) is a reasonably well-known part of our tax code. Broadly, where a loan or advance is made to a shareholder – typically where an overdrawn director’s loan account arises – that has not been cleared or repaid within nine months of the company’s year end, the company must pay a 33.75% tax charge on the amount that remains outstanding. In practice, many overdrawn loan accounts are cleared by the company making a bonus payment or a dividend payment to the director-shareholder within the nine-month repayment ‘window’.
The section 455 charge is effectively an anti-avoidance provision. Without it, shareholders would simply be able to extract cash from ‘their’ companies, without a tax
