New tax rules on directors loans!

[john@UKCA]

Does anyone out there use the bed & breakfast technique whereby the director borrows money from their company, repay it to avoid the corresponding 25% tax charge shortly before the financial year end and then re-borrow the money a short while later. HMRC new tax rules aim to penalise this scenario by matching the loan repayment made with the new loan taken out leaving the orginal loan subject the 25% tax charge.

[Clare@InTouch]

New tax rules? Those rules have always been in place, and are specifically referred to in the existing guidance. I'll find a link, hold on.....

[cojak]

Does anyone out there use the bed & breakfast technique whereby the director borrows money from their company, repay it to avoid the corresponding 25% tax charge shortly before the financial year end and then re-borrow the money a short while later. HMRC new tax rules aim to penalise this scenario by matching the loan repayment made with the new loan taken out leaving the orginal loan subject the 25% tax charge.

No, I don't.

But then again my accountant doesn't advise me on any tax-avoidance soft-shoe shuffling.

[Clare@InTouch]

http://www.taxation.co.uk/taxation/A.../account-owing

Finally, where a loan is repaid to the company shortly before the end of the accounting period but a further advance is made shortly after the end of that accounting period, HMRC will treat the original loan as still outstanding (CTM61615); no minimum period is given so care will be needed.

http://www.hmrc.gov.uk/manuals/ctmanual/CTM61615.htm

CTM61615 - Close companies: loans to participators: repayment of - bed and breakfasting
ICTA88/S419 (4)

There is further advice on bed and breakfasting cases generally in EM8565.

You may find that a participator's indebtedness to the company is shown as reduced or eliminated immediately before the accounting date, or before the due date for payment of the Section 419 tax, only to be followed by a fresh loan or advance of the same or of a similar amount soon afterwards.

The temporary reduction in indebtedness is often brought about by the participator borrowing funds on a short-term basis from a third party such as a bank. But it may come from a transfer of assets to the company, or a transfer from another account with the company. You may come across other schemes for ‘bed and breakfasting’ the debt.

Where you think that you have found a case of bed and breakfasting you should get full details of the transactions and obtain as much factual evidence of the transactions and the accompanying arrangements as possible. As a minimum this should include copies of bank statements for the company and the relevant participators. CTIAA (Technical) will advise further on the types of information which should be obtained.

It is vital to establish whether the mechanics of the transactions/arrangements have been effected in the right order and on the right dates, and that book entries reflect genuine underlying transactions. For example, a cheque may not actually have cleared i.e. the funds have not actually been received in the company bank account, before the relevant date (the end of the accounting period or the 9 month point) and there can therefore be no argument that the loan is repaid at the appropriate point.

Even if the transactions have been carried out on the correct dates there are still possible challenges to any claim to S419(4) relief.

You should submit the papers to CTIAA (Technical) with a detailed technical submission for further advice on the arguments to run in specific cases.

CTIAA will consult and involve AAG if the argument will involve invoking the Ramsay approach.

[TheCyclingProgrammer]

@Clare - whilst "bed and breakfasting" can apply to various tax issues, I'm pretty sure that the rules as they relate to directors loans only came into force in March 2013, hence the OP's reference to "new rules".

I can only find http://www.stanbridgeaccountants.co....-loan-accounts as a source right now.

Edit: perhaps this was actually a tightening/clarification of existing rules?

OP: if you have an overdrawn DLA account that you really can't afford to re-pay in time to avoid the corporation tax charge, remember you do get the tax refunded when the loan is repaid.

[john@UKCA]

http://www.taxation.co.uk/taxation/A.../account-owing

Finally, where a loan is repaid to the company shortly before the end of the accounting period but a further advance is made shortly after the end of that accounting period, HMRC will treat the original loan as still outstanding (CTM61615); no minimum period is given so care will be needed.

CTM61615 - Close companies: loans to participators: repayment of - bed and breakfasting

CTM61615 - Close companies: loans to participators: repayment of - bed and breakfasting
ICTA88/S419 (4)



There is further advice on bed and breakfasting cases generally in EM8565.

You may find that a participator's indebtedness to the company is shown as reduced or eliminated immediately before the accounting date, or before the due date for payment of the Section 419 tax, only to be followed by a fresh loan or advance of the same or of a similar amount soon afterwards.

The temporary reduction in indebtedness is often brought about by the participator borrowing funds on a short-term basis from a third party such as a bank. But it may come from a transfer of assets to the company, or a transfer from another account with the company. You may come across other schemes for ‘bed and breakfasting’ the debt.

Where you think that you have found a case of bed and breakfasting you should get full details of the transactions and obtain as much factual evidence of the transactions and the accompanying arrangements as possible. As a minimum this should include copies of bank statements for the company and the relevant participators. CTIAA (Technical) will advise further on the types of information which should be obtained.

It is vital to establish whether the mechanics of the transactions/arrangements have been effected in the right order and on the right dates, and that book entries reflect genuine underlying transactions. For example, a cheque may not actually have cleared i.e. the funds have not actually been received in the company bank account, before the relevant date (the end of the accounting period or the 9 month point) and there can therefore be no argument that the loan is repaid at the appropriate point.

Even if the transactions have been carried out on the correct dates there are still possible challenges to any claim to S419(4) relief.

You should submit the papers to CTIAA (Technical) with a detailed technical submission for further advice on the arguments to run in specific cases.

CTIAA will consult and involve AAG if the argument will involve invoking the Ramsay approach.

section 419? that went long time ago!

[kevpuk]

What was the middle bit?

[TheFaQQer]

section 419? that went long time ago!

Since Clare's post was a direct quote from HMRC, doesn't that emphasise how these are hardly "new" rules?

[Clare@InTouch]

section 419? that went long time ago!

Exactly - so if the B&B rules were around when s419 was still s419, before it became s455, then they aren't very new

[john@UKCA]

Exactly - so if the B&B rules were around when s419 was still s419, before it became s455, then they aren't very new

The HMRC manual is not law - thats why its out of date!