S455 tax on shareholders overdrawn loan accounts

Whilst there were thankfully no changes to the corporation tax rates announced in the budget, an anti-avoidance measure has been announced to counteract attempts of close companies to avoid paying S455 tax on overdrawn shareholders’ loan accounts by using related companies to repay the loans. In short, a close company is a company controlled by five or fewer shareholders and so includes most family companies. A charge of 33.75% is levied on loans made by close companies to shareholders if not repaid within 9 months of a company’s year-end. This is usually referred to as S455 tax.

Some companies had been seeking to get round these rules by using one or more group or related companies to repay the loan to avoid a S455 charge. Legislation is to be introduced in the Finance Bill 2024-25 to catch these, and possibly similar arrangements, with effect from 30 October 2024.

Corporation Tax Roadmap

The government has set out a paper titled Corporation Tax roadmap 2024. The government’s commitments include:

  • capping the main rate of Corporation Tax at 25% for the duration of parliament. NB. It was increased from 19% to 25% in April 2023.
  • retaining the small profits rate (19%) at current rates and thresholds. NB. For a company with no associated companies the first £50,000 taxable profits are taxed at 19%.
  • maintaining the £1M annual investment allowance and permanent full expensing.
  • maintaining R & D reliefs.
  • working collaboratively with companies on simplification and improving user experience, including HMRC’s path on digitisation.
  • developing a new process for increasing the tax certainty available in advance for major investments.

There is a high appetite for policy stability on Corporation Tax following several years of significant change. So, no news is good news!

Please click here to go back to our full Autumn Budget 2024 analysis.