When is a loan repayment not a loan repayment? Peter Vaines offers some thoughts.
To help us pass the time during lockdown, HMRC issued some interesting guidance on the rules relating to repayments where there have been loans to participators within the terms of section 455 CTA 2010. It was not guidance really but an explanation of their view about what represents a repayment.
Everybody knows about the tax implications of loans by a close company to participators and their associates. They are often referred to as loans to directors; and of course directors are often participators – but not always. If a company makes a loan to a participator that is outstanding for more than nine months after the end of the company’s accounting period, section 455 CTA 2010 requires the company to make a payment equal to 33.75% of the loan to HMRC.
Where a liability under section 455 has arisen and has been paid by the company, the amount can be recovered from HMRC under section 458 if:
- the loan is repaid to the company,
- or the debt is released or written off.
HMRC point to “an increasing number of cases” where repayments of loans and overdrawn directors’ loan accounts are said to have been repaid, but all that has happened is that the debtor balances have been moved around a series of associated companies.
HMRC say (on the authority of Collins v Addies TC 65 190) that “the substitution of a fresh debtor [for the original debtor] does not constitute repayment”.
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