Tighter rules for company loans

The recent Autumn Budget announced a new rule affecting loans and other advances made by companies to their shareholders. If you owe your company money, is this something you should be concerned about? Partner Christiaan Hansen discusses the implications.

If you are an owner manager of a close company (this is a company which is owned or controlled by five or fewer individuals) a tax charge can apply if you owe the company money which isn’t repaid within nine months of the end of the accounting period in which the debt arose.
This tax charge, known as an S.455 charge, is equal to 33.75% of the debt remaining at the nine month deadline. When the debt is cleared, HMRC refunds it, but no earlier than nine months following the end of the accounting period in which the debt was cleared.

Anti-avoidance
Existing anti-avoidance rules are designed to prevent avoidance of the S.455 charge where a participator borrows more money to clear an existing debt before the nine-month deadline is reached. This is known as bed and breakfasting (B&B). However, some companies have found a way around the B&B rule by using two or more businesses to create a chain along which the debt can be transferred from one to another so that the nine-month s.455 trigger date is never reached.

Budget change
The Chancellor announced in her Budget that the existing anti-avoidance rule is to be scrapped and replaced with a tougher version which blocks the “chain” avoidance method as described in the previous paragraph. The new rule took effect from the Budget day of 30 October 2024. Unless your company is involved in the type of avoidance described above the new rules will have no tax impact on you or your company.

There are still legitimate ways to prevent the S.455 charge, including one involving dividends that doesn’t require you or your company to raise any cash to clear the debt.

Contact our team for more information and specific queries you may have.