S455 Tax/Participator Query

Please can someone clarify this for me. I have a limited company client with Mr X who started as a director-shareholder but resigned and transferred his shares part-way through the financial year. Miss X was appointed as a director in the year but has always been a shareholder.

Both have overdrawn 'directors loan accounts'. Will Mr X's be subject to S455 as he was a participator during the year even though he is not a participator at the year-end? Or will the amounts only up to the date he ceased to be a participator be subject to S455? Or not at all and just treated as an 'other debtor'?

Going around in circles here :) Thanks!

Comments

  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    S.455 applies to loans made to participators or their associates:
    https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm61505

    Associates includes partners:
    https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm60150

    Consequently I believe any loan made to the boyfriend would come into the charge of S.455 either by virtue of him being a director or being an associate of a director

    On an unrelated point, there may be capital gains tax due on the disposal of shares from the boyfriend to the girlfriend.
  • Gem7321
    Gem7321 MAAT, AAT Licensed Accountant Posts: 1,438
    Sorry I should point out the parties are not spouses
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    In the case I believe the entire loan, historic and after resignation, should be shown as an 'other debtor' and not charged to S.455

    Although would be good if there is some sort of loan agreement in place in order to show HMRC that it is a genuine loan to an external 3rd party and not something that should form part of her loan account and charged to S.455.
  • Gem7321
    Gem7321 MAAT, AAT Licensed Accountant Posts: 1,438
    Thanks @reader do you know where I can find the guidance/legislation to support this?
  • MarieNoelle
    MarieNoelle Moderator, MAAT, AAT Licensed Accountant Posts: 1,369
    Sorry I don't have any specific point of legislation to support this but I would disagree with @reader.
    In my view the loan was made at the time he was a participator so would be liable to S455 - any further amount he may have borrowed since (if any) would be as a non-participator so not caught. If the loan is subsequently written off I would also think it would be a deemed dividend and no CT deduction available.
    However this is just my point of view so to be taken with caution.
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    To be honest, this makes sense, ultimately the loan was a DLA and can't magically change into something else.

    If hmrc investigated, they would definitely want to treat as dla (unless the loan was been repaid, released)
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