Section 455 rules

Question 1

If we had a loan which was made to a participators in a trading partnership - would this give rise to a s.455 charge. / what if it was made to a company in which a connected party is a participators

Answer 1

In this scenario - we would want to treat it as a s.455 charge as it was to some close of a participator / in this context we would need to know why the loan was made, but if we have been told it was for the purpose of a loan and it was made to a limited company then it would not be captured under s.455 rules

Question 2

What do we need to consider if a s.455 loan is written off

Answer 2

1. the s.455 which was previously paid under the loan will be repaid.
2. if the company write off this loan - this income will then be chargeable to the individual under the current income tax rates.
3. HMRC will treat this release of a loan as BIK and will therefore be subject to class 1a NICs @13.8%
4. This loan write off will not be an allowable expense

Question 3

What do we need to consider in respect of Bed & breakfasting rules for s.455 loans

Answer 3

In the event that the a loan is remade again, we need to be mindful that:
1. the loan exceeds £5,000
2. How was the original loan repaid.
3. Was this second loan made within 30 days of the original repayment

this second factor is important as if individual pays back more to effectively cover this additional loan that is taken out, if this distribution was from another company then it wont be able to be net off against the additional loan taken out so a further s.455 loan will be taken out

Question 4

What is an alternative methods the company could use to write off a s.455 loan

Answer 4

1. The company could look to issue dividends to the individual which would mean that they wouldn’t be required to pay any NICs on distribution or on the write off for the loan
2. the company could look to pay a bonus which after PAYE deduction could clear the balance of the loan. if processed the normal way through the payroll then a deduction would be received in form of salary/income tax/NICs

Question 5

What are some capital gain implications on the sale of shares in light of various s.455 loans being made

Answer 5

We need to be mindful that s.455 loans are consider to be non-trading amounts and that HMRC will except that relief is available for a “trading company” so if there has been a substantial amount of non-trade loans, HMRC may question whether the disposal of shares is for a trading company so we should advise to minimise the taking out of any further loans.