These rules are covered under Corporation Tax Act (CTA) 2010: Section 455 to 465
Section 455 will apply to loans to directors who are also shareholder (owning 5% or more) and to shareholders who are not directors. It does not apply to directors who are not shareholders.
|When was the loan repaid
|Within 9 months of Year end (YE)
|After 9 months of YE
||Tax @ 32.5% (previously use to be 25%)
Relief given in the YE when loan re-paid. Relief should be claimed within 4 years.
Tax avoidance measures:
Section 464C introduced w.e.f. 20 March 2013. Basically any window dressing is set aside. For more information see CTM61615.
Repaying loan via dividends/salary/bonus is not window dressing.
Points to be aware:
1) No non-business expenses posted as business expense.
2) All employment income has appropriate tax and NIC deducted.
3) If DLA balance anytime during the year over £10k. It will be treated as beneficial loan and showed by reported in P11D and NIC Class 1A paid.
Please note this limit does not apply to Sec 455 charge.
To avoid this , one can issue interim dividends to ensure loan balance does not go over £10k anytime during the year.
Often client are confused when we tell them that we will need to file two tax returns for the first year of the company’s life.
GOV website has explained it lucidly:
During the expansion phase of a business. Clients invest a lot of money which is eligible for capital allowance but the company under which investment is made may not have sufficient profits to absorb it.
If a client has other profitable companies within the group. Current year’s capital allowance can be transferred to the profitable companies to reduce the tax over all group tax bill.
If one wishes to shorten the Tax year before the end of the tax year as per HMRC records.
It can be only done by calling HMRC.
It takes 15 working days to be completed at HMRC end.
Please note in case you are closing the company, please specifically ask the HMRC person you are speaking on the telephone to make the company dormant after the shortened period end date, otherwise HMRC will expect tax return for period after this date.
Also remember to change the `accounting reference date` in Companies House records.