Chapter 31 Close Company Implications – further aspects Flashcards
31.1 Loans excluded from the s.455 charge
Loans made in the ordinary course of business of the company are excluded from the s.455 charge. There is also an exclusion for debts incurred in the supply of goods or services in the ordinary course of the trade, unless the credit period exceeds six months or is longer than normally given to customers.
There is an exclusion for loans of no more than £15,000 made to a full-time director or employee who does not have a material interest (5%, includes associates) in the company.
31.2 Benefits to participators
Where the shareholder is an employee or director of a close company, any benefits are taxed under earnings. In absence of special rules where shareholders are not employees or directors, they would not pay tax on benefits. We treat these benefits as dividends paid to those shareholders.
The rules apply to any expense incurred by the company in connection with the provision of living, entertainment, domestic or other services or other benefits. The dividend rules does not include:
• Benefits to employees taxed under the earnings rules
• Living accommodation if it is within the exceptions within the earnings rules
• Pensions, annuities or lump sums paid to the children, spouse or dependents of an employee on the employee’s death or retirement
31.3 Beneficial loan interest
Where a close company makes a loan to a participator and either charges no interest or interest below the official rate, a taxable benefit is levied on the participator. If the participator is an employee or director this is taxed as earnings. If it is a shareholder then the loan benefit is treated as a distribution and subject to income tax as a dividend.
31.5 Jointly held property
Where shares in a close company are held jointly by spouses, any income from the shares are taxed according to their actual ownership of the shares. This is an exception to the general rule that income is taxed 50:50 unless an election is made for taxation according to actual ownership.
