CTM61610 - Close companies: loans to participators: repayment of - date relief is due

ICTA88/S419 (4), ICTA88/S419 (4A)

The general thrust of the FA96 changes to ICTA88/S419 (see CTM98255) was to align the due date for Section 419 tax with the due date for mainstream CT and to defer relief where a loan is repaid (or released or written off on or after 6 April 1999) more than nine months after the end of the accounting period.

However, the principle that relief would be available immediately was retained where the loan is repaid etc. within nine months of the end of the period. The company will not need to pay the Section 419 tax if the loan is repaid etc. before the tax falls due, because the company will then be entitled to relief under Section 419 (4). This should take many companies outside the charge, where for example the loans are fully repaid by voting remuneration or dividends as soon as the preparation of the accounts reveals the extent of the indebtedness.

Section 419 (4A) states that relief can only be given 9 months after the end of the accounting period in which the repayment was made. It therefore follows that relief cannot be given unless the repayment is made in an accounting period. Where you are aware of a company which is to liquidate or dissolve, and a loan repayment is to be made, advise the company that the repayment must be made in an accounting period. If the repayment of the loan has already been made and you cannot establish an accounting period for the company at the relevant time, contact CTIAA (Technical).

If repayment (or release or write off on or after 6 April 1999) of the loan is made more than nine months after the end of the accounting period, then ICTA88/S419 (4A) defers relief until the due date for the accounting period in which the repayment etc. takes place.

The deferral of the relief can affect the date on which a liquidation can be finalised or on which a company can dissolve using ESCC16. Clearly, if the directors choose to force a short accounting period (for example, by changing the accounting periods with Companies House or using one of the other accounting period triggering events in ICTA88/S12), then the wait for any repayment due can be correspondingly shortened. You must not make any repayments before they are due, and where the tax remains unpaid, you must not withhold collection pending the relief becoming due.

There is no change to the rules for interest on overdue tax under TMA70/S87A, so interest stops running when the loan is repaid etc. and not when relief is due. The material date for repayment interest on loans or advances taxed under the new rules will normally depend on the date the loan is repaid etc. (see CTM98265).

For pre-CTSA accounting periods (i.e. those ending before 1 July 1999), Section 419 assessments must not be amended until relief under Section 419 (4) is due (see AC4814 and AC4815). Where a Section 419 (4) claim is made but relief cannot be given because Section 419 (4A) applies, the Section 419 tax must not be stood over.

For CTSA accounting periods (i.e. those ending on or after 1 July 1999), the company's self-assessment must not be amended until relief under Section 419 (4) is due.