CTM61510 - Close companies: loans to participators: meaning of ‘individual’

ICTA88/S419 (6)

The meaning of ‘individual’ is extended by ICTA88/S419 (6) to include:

• a company which is acting in a fiduciary or representative capacity, and
• for accounting periods ended before 31 March 1996, a company which is not resident in the UK (FA96/S173).

Therefore, a loan or advance to such a company, which is a participator in the close company or an associate of a participator in the close company, will also be within the charge to tax under Section 419. Please send a brief report to CTIAA (Technical) where it is contended that ICTA88/S419 (6) constitutes discrimination contrary to the provisions of the EC Treaty and/or a non-discrimination Article in a Double Taxation Agreement.

The singular term ‘individual’ also encompasses ‘individuals’, (Section 6 Interpretation Act 1978). Where, therefore, a close company makes a loan or advance to a partnership and one of the partners is a participator in the company, the other partners are ‘associates’ (see CTM60150) and the loan or advance is within Section 419.

Similarly, where a loan is made to a trustee or trustees and any shares or obligations of the company are subject to the trust, the trustee or trustees are participators or associates of a participator (see CTM60107 onwards) and the loan is therefore within Section 419. Where the trustee is a ‘trust company’, that company will be treated as an ‘individual’ under Section 419 (6).