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Tax consequences for close companies

Summary of tax considerationsThe concept of a close company is intended to capture those companies that are closely controlled (ie by the owners and managers) and therefore could be used to manipulate the tax position of its activities and its investors.If a company is a close company, its own tax position may be affected by:•the tax charge made on loans advanced and other benefits made available to participators, and•the extended meaning of distributionsThese tax consequences are further explained in this Practice Note.The tax position of a close company's participators may also be affected by:•the extended meaning of distributions•the income tax change that arises where a close company has been chargeable to tax under section 455 of the Corporation Tax Act 2010 (CTA 2010) and releases or writes off the whole or part of the debt•the attribution of a transfer of an asset by a close company at an undervalue•the attribution of payments to and from the company where the company has been interposed between the beneficiaries and trustees of a...

Loan relationships—late-paid interest

The loan relationships rules in Part 5 of the Corporation Tax Act 2009 (CTA 2009) contain a set of anti-avoidance provisions which relate to the late payment of interest. Where these provisions (the late-paid interest rules) apply, they can defer the time at which a corporation tax deduction is available to a debtor company in respect of interest on a loan relationship.It is important to note upfront that the scope of the late-paid interest rules was significantly narrowed by Finance Act 2015 (FA 2015). As a result, the rules now have a very limited application, and their original scope has largely been superseded by the loan relationships regime-wide anti-avoidance rule (RAAR) that was introduced by Finance (No 2) Act 2015 (F(No 2)A 2015). The late-paid interest rules do however retain relevance in relation to certain loans made by participators to close companies, and to loans made by trustees of occupational pension schemes to debtors which employ (or are in some way connected with an employer of) persons to whom the scheme...

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Client letter explaining the employee and employer tax consequences of staff entertainment and gifts to employees and directors

Client letter explaining the employee and employer tax consequences of staff entertainment and gifts to employees and directors [Insert client’s address] Income tax treatment of staff entertainment and gifts to employees and directors 1 Purpose of this letter This letter explains the income tax and National Insurance contributions (NICs) consequences of providing staff entertainment (such as parties) and gifts to employees, for both the employee and employer. Throughout this letter, references to employees include references to directors (and other office holders, eg the company secretary) of the employing company. 2 Staff entertainment—income tax and NICs treatment The provision of a party or staff event to employees will typically give rise to a taxable benefit for each employee (subject to income tax and Class 1A NICs), which must be included on the P11D or included in the PAYE Settlement Agreement (PSA) if one is in place with HMRC (a PSA is used when the employer has agreed to settle any income tax and associated Class 1A NICs (although...

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FTT finds that director loan was not written off or released on liquidation (Quillan v HMRC)

Tax analysis: In Quillan, the First-tier Tax Tribunal (FTT) allowed the taxpayer’s appeal, finding that his director loan account balance was neither written off nor released for the purposes of section 415(1) of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) on the liquidation of the company, contrary to HMRC’s guidance on this area in its Company Taxation Manual.