Section 455 of the Corporation Tax Act 2010 charges a close company that lends money to a participator and does not get it back. The charge is on the company, at 33.75% of the loan, and it is refundable once the loan is repaid. It exists to stop a company distributing value to its owners as a loan that is never repaid rather than as a dividend that would be taxed.
What triggers it
Three things have to be true together. The company must be a close company, which most owner-managed UK companies are. The borrower must be a participator, which for practical purposes means a shareholder or a person entitled to share in the company's income or assets, and it includes their associates. And the loan must still be outstanding nine months and one day after the end of the accounting period in which it was made. Miss any one and there is no charge.
The rate, and why it is that number
The s455 tax rate is 33.75% of the amount outstanding, or 32.5% for a loan made before 6 April 2022. Both figures track the higher rate of dividend tax at the time, and that is the whole design: the charge is set so that taking money out as an unrepaid loan is no cheaper than taking it out as a dividend taxed at the higher rate. It is not a penalty rate and it is not meant to be punitive; it is meant to be exactly unattractive enough to remove the incentive.
Why it is a deposit rather than a tax
The charge is repayable in full when the loan is permanently repaid, released or written off. That makes it unusual among taxes: the company is not out of pocket in the long run unless the loan never clears. What it does not refund is time and interest. The reclaim cannot be made until nine months and one day after the end of the accounting period in which the loan was repaid, so a company that pays the charge and repays the loan the following month can still wait the better part of two years for the money, and the interest that accrued on the late charge is gone.
Questions people ask about s455 tax
What is s455 tax?
A corporation tax charge under section 455 CTA 2010 on a close company that has lent money to a participator and not been repaid within nine months and one day of the end of the accounting period. The rate is 33.75% of the amount outstanding.
Who pays the s455 charge?
The company, not the director. It is assessed on the company and paid with the company's own corporation tax, which is why it belongs in the company's computation.
Is s455 tax refundable?
Yes, once the loan is permanently repaid, released or written off. The refund cannot be claimed until nine months and one day after the end of the accounting period in which the repayment happened, and the interest is not refunded.