EM8551 - Close Companies: ICTA88/Section 419 (Loans to Participators): Notifying Chargeability

TMA70/S109/(1) - CTA and CTPF

FA98/SCH 18/PARA 1 - CTSA

The charge under Section 419(1) only applies to close companies.

FA86/S43 removed the possibility of two anomalous constructions of what is now ICTA88/S419 in relation to loans or advances repaid before an assessment is made. One is that the company has no title to relief under Section 419(4) and the other is that there is no right to make an assessment. These doubts were removed in the case of loans made after 18 March 1986, and also where there is a repayment after that date of a loan made on or before it. Where repayment of the loan took place before 19 March 1986, you should not deny relief because an assessment had not previously been made.

Because of the decision of the High Court in the case of Earlspring Properties Ltd v Guest 67TC259, you should not seek to include in a contract settlement interest or penalties on a loan or advance which was both made and repaid before 19 March 1986 and had not previously been assessed.

Accounting Periods ending before 1 July 1999 (CTA and CTPF)

The obligation to notify chargeability arises from TMA70/S109(1) which applies enactments applying generally to CT to liability under S419. Thus for APs ending before 1/7/99 provisions of TMA70/S10 EM4552 provide the obligation and penalty for failure.

This was upheld by the Court of Appeal in Earlspring Properties Ltd v Guest 67TC259 confirming our view that

• as notices served under TMA70/S11 do not call for a return of loans or advances to participators, S10(1)(b) does not exempt companies who have received a Company Tax Return, and
• the obligation to notify S419 liabilities is separate to the obligation for CT and the absence of a prescribed form for returning loans or advances does not excuse the failure.

Accounting Periods ending on or after 1 July 1999 (CTSA)

Liability under ICTA88/S419(1) is assessable and chargeable as if it were CT so this forms part of the Company Tax Return and there is no separate obligation to notify chargeability.

Specific guidance on seeking penalties for failing to notify liability under S419 and whether an offence of submitting incorrect accounts has been committed is covered at EM8630.