S455 Tax Rules from 20th March 2013

Written by Arnold Hill on May 30, 2013

Funds taken out of the company as a loan (i.e. not salary or dividend) that is not repaid within nine months of the end of accounting period will attract a liability to Section 455 tax of 25% of the outstanding loan balance. Where the loan is repaid within 9 months of the year end the liability does not become due.

However, this rule has been used by some companies to recycle balances by repaying a loan within the 9 months, avoiding the s455 tax, and immediately taking out a new loan.

As a result, two new rules have been included in the Finance Bill to prevent these arrangements and these are outlined below.

Two new rules:

The first restriction imposes a 30 day test:

  •  If within a 30 day period one or more loan repayments totalling £5,000 or more are made to the company and one or more loans or advances are made to that person (or someone connected to that person), the loan repayments will be ignored by HMRC
  •  The loan will therefore be treated as still outstanding and relief will not be given for the s455 tax


The second restriction imposes a less objective test but it is believed that problems may arise if it is not considered early on in the company’s accounting period:

  •  If there is a balance outstanding from a participator of £15,000 or more prior to a repayment,
  •  At any time after a repayment is made to the company, the company makes a new loan to that person (or someone connected to that person), and
  •  Arrangements had been made to make a new loan or there was an intention for a new loan to be made
  •  The loan repayment will be ignored such that no relief will be given against the s455 tax and payment will be due


The onus is on the company to consider whether the restrictions apply to repayments made after 20 March 2013 and amend its tax return accordingly.

These rules apply from 20 March 2013 and so it is necessary to review any balances outstanding to the company and consider the availability to make repayments so as to not fall foul of the restrictions.

It is therefore preferable to clear down any outstanding loan accounts as far as possible before the company’s year end.