Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 10 — Close companies
Chapter 2 — Basic definitions
228

(b)
is—
(i)
the beneficial owner of, or
(ii)
directly or indirectly able to control,

at least 20% of the ordinary share capital of the company.
(3)
For the purposes of subsection (2)(b), P is treated as owning or controlling (as
5
the case may be) what any associate of P owns or controls.
453
“Loan creditor”
(1)
For the purposes of this Part, “loan creditor”, in relation to a company, means
a creditor—
(a)
in respect of any debt within subsection (2), or
10
(b)
in respect of any redeemable loan capital issued by the company.

But this is subject to subsection (4).
(2)
Debt is within this subsection if it is incurred by the company—
(a)
for any money borrowed or capital assets acquired by the company,
(b)
for any right to receive income created in favour of the company, or
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(c)
for consideration the value of which to the company was (at the time
when the debt was incurred) substantially less than the amount of the
debt (including any premium on the debt).
(3)
A person who—
(a)
is not the creditor in respect of any debt or loan capital to which
20
subsection (1) applies, but
(b)
has a beneficial interest in that debt or loan capital,

is, to the extent of that interest, treated for the purposes of this Part as a loan
creditor in respect of that debt or loan capital (but this is subject to subsection
(4)).
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(4)
A person carrying on a business of banking is not treated as a loan creditor in
respect of any debt or loan capital incurred or issued by the company for
money lent by the person to the company in the ordinary course of that
business.
(5)
See also section 519(2) of CTA 2009 (bond-holder under investment bond
30
arrangements is loan creditor in respect of bond-issuer).
454
“Participator”
(1)
For the purposes of this Part, “participator”, in relation to a company, means a
person having a share or interest in the capital or income of the company.
(2)
In particular, “participator” includes—
35
(a)
a person who possesses, or is entitled to acquire, share capital or voting
rights in the company,
(b)
a loan creditor of the company,
(c)
a person who possesses a right to receive or participate in distributions
of the company or any amounts payable by the company (in cash or in
40
kind) to loan creditors by way of premium on redemption,
(d)
a person who is entitled to acquire such a right as is mentioned in
paragraph (c), and

Corporation Tax Bill
Part 10 — Close companies
Chapter 3 — Charge to tax in case of loan to participator
229

(e)
a person who is entitled to secure that income or assets (whether
present or future) of the company will be applied directly or indirectly
for the person’s benefit.
(3)
For the purposes of subsection (2), a person is treated as entitled to do anything
which the person—
5
(a)
is entitled to do at a future date, or
(b)
will at a future date be entitled to do.
(4)
In subsection (2) “distribution” is to be construed without regard to section
1000(2) (extended definition of distribution for close companies).
(5)
See also section 519(2) of CTA 2009 (investment bond arrangements to be
10
ignored in the application of subsection (2)(e)).
(6)
This section does not affect any provision of this Part requiring a participator
in one company to be treated as being also a participator in another company.
Chapter 3
Charge to tax in case of loan to participator
15
Charge to tax in case of loan to participator
455
Charge to tax in case of loan to participator
(1)
This section applies if a close company makes a loan or advances money to a
relevant person who is a participator in the company or an associate of such a
participator.
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(2)
There is due from the company, as if it were an amount of corporation tax
chargeable on the company for the accounting period in which the loan or
advance is made, an amount equal to 25% of the amount of the loan or advance.
(3)
Tax due under this section in relation to a loan or advance is due and payable
in accordance with section 59D of TMA 1970 on the day following the end of
25
the period of 9 months from the end of the accounting period in which the loan
or advance was made.
(4)
For the purposes of this section and sections 456 to 459, the cases in which a
close company is to be treated as making a loan to a person include a case
where—
30
(a)
that person incurs a debt to the close company, or
(b)
a debt due from that person to a third party is assigned to the close
company.

In such a case, the close company is to be treated as making a loan of an amount
equal to the debt.
35
(5)
If a company (C) controls another company (D), a participator in C is to be
treated for the purposes of this section as being also a participator in D.
(6)
In this Chapter, “relevant person” means—
(a)
an individual, or
(b)
a company receiving a loan or advance in a fiduciary or representative
40
capacity.

Corporation Tax Bill
Part 10 — Close companies
Chapter 3 — Charge to tax in case of loan to participator
230

(7)
For exceptions to the charge under this section, see section 456.
(8)
See also—
(a)
section 458 (relief in case of repayment or release of loan),
(b)
section 459 (loan treated as made to participator), and
(c)
sections 460 to 462 (loan treated as made by close company).
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Exceptions to the charge to tax under section 455
456
Exceptions to the charge under section 455
(1)
Section 455 does not apply to a loan or advance made in the ordinary course of
a business carried on by a company if the business includes the lending of
money.
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(2)
Section 455(4)(a) does not apply to a debt incurred for the supply by a close
company of goods or services in the ordinary course of its trade or business
unless the credit given exceeds 6 months or is longer than that normally given
to the company’s customers.
(3)
Section 455 does not apply to a loan or advance made to—
15
(a)
a director of a close company,
(b)
an employee of such a company,
(c)
a director of an associated company of such a company, or
(d)
an employee of such an associated company,

if conditions A, B and C are met (but see subsection (7)).
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(4)
Condition A is that—
(a)
the amount of the loan or advance does not exceed £15,000, and
(b)
that amount does not exceed £15,000 when taken together with any
other outstanding loans and advances which were made to the
borrower by—
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(i)
the close company, or
(ii)
any of its associated companies.
(5)
Condition B is that the borrower works full-time for the close company or any
of its associated companies.
(6)
Condition C is that the borrower does not have a material interest in the close
30
company or in any of its associated companies.
(7)
If the borrower acquires such a material interest at a time when the whole or
part of any loan or advance within subsection (3) remains outstanding, the
close company is to be treated as making to the borrower at that time a loan or
advance of an amount equal to the sum outstanding.
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(8)
For the meaning of “material interest in a company”, see section 457.
457
Section 456: meaning of “material interest in a company”
(1)
A person has a material interest in a company for the purposes of section 456 if
condition A or B is met.

Corporation Tax Bill
Part 10 — Close companies
Chapter 3 — Charge to tax in case of loan to participator
231

(2)
Condition A is that the person (with or without one or more associates) or any
associate of that person (with or without one or more other such associates)
is—
(a)
the beneficial owner of, or
(b)
directly or indirectly able to control,
5

more than 5% of the ordinary share capital of the company.
(3)
Condition B is that, in the case of a close company, the person (with or without
one or more associates) or any associate of that person (with or without one or
more other such associates) possesses or is entitled to acquire such rights as
would—
10
(a)
in the event of the winding up of the company, or
(b)
in any other circumstances,

give an entitlement to receive more than 5% of the assets which would then be
available for distribution among the participators.
Relief in case of repayment or release of loan
15
458
Relief in case of repayment or release of loan
(1)
Subsection (2) applies if a close company has made a loan or advance which
gave rise to a charge to tax on the company under section 455.
(2)
Relief is to be given from that tax, or a proportionate part of it, if—
(a)
the loan or advance or part of it is repaid to the company, or
20
(b)
the whole or part of the debt in respect of the loan or advance is
released or written off.
(3)
Relief under this section is to be given on a claim, which must be made within
4 years from the end of the financial year in which the repayment is made or
the release or writing off occurs.
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(4)
Subsection (5) applies if—
(a)
the repayment of the whole or part of a loan or advance occurs on or
after the day on which tax under section 455 becomes due and payable
in relation to the loan or advance, or
(b)
the release or writing off of the whole or part of the debt in respect of a
30
loan or advance occurs on or after the day on which tax under that
section becomes due and payable in relation to the loan or advance.
(5)
Relief in respect of the repayment, release or writing off may not be given
under this section at any time before the end of the period of 9 months from the
end of the accounting period in which the repayment, release or writing off
35
occurred.
(6)
Schedule 1A to TMA 1970 (claims and elections not included in return) applies
to a claim for relief under this section unless—
(a)
the claim is included (by amendment or otherwise) in the return for the
period in which the loan or advance was made, and
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(b)
the relief may be given at the time the claim is made.