An area due to come up in the March 2023 Advanced Tax is close companies
A close company is one that is controlled by 5 or less individual shareholders called participators. Control is ownership of 51% ordinary share capital or voting rights.
To avoid the rules, many directors began transferring their shares to family members or business partners (called associates) so the director and their family members are treated a single person for the 51% test.
If the close company gives a loan to the participator and the loan is outstanding when the corporation tax is payable (9 months and 1 day) from the end of the accounting period, The close company is subject to an s455 assessment which is 32.5% of the loan.
HMRC will refund the tax if the loan is repaid or written off. The shareholder is subject to income tax on a dividend if the loan is written off.
If 3 conditions are satisfied then the penalty tax is not payable
· Loan does not exceed £15,000
· Shareholder does not own more than 5% OSC
· Works full-time for the close company
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