Close companies is a topic that was examined in the March 2022 Advanced Tax exam.
The concept here is we are looking at family companies controlled by 5 or less individuals. These individuals were able take loans from the company and avoid paying them back as they control the company
Under s455, HMRC ask the close company to pay penalty tax based on 32.5% of the loan if the loan is outstanding 9 months and 1 day after the end of the accounting period.
This penalty tax is refunded if the loan is written off by the company or repaid. If the loan is written off, the shareholder is subject to income tax on a dividend.
No penalty tax is payable if 3 conditions are satisfied ( loan is not more than £15,000, individual is employed full time by the company and the individual owns no more than 5% OSC)
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