Section 455 planning between associated companies

It is generally well known that a ‘section 455 charge’ will arise if a loan outstanding to a shareholder remains outstanding nine months after the year end. In these circumstances, the company has to pay 33.75% of section 455 tax and this is payable nine months after the year end. When this loan is either repaid or written off then the section 455 charge will be repayable by HMRC to the company nine months after the accounting period in which it is repaid or written off. Often, the loan will be repaid by the company declaring a dividend to the borrower which will give rise to an income tax charge. Any loan write-off is also taxed like a dividend.

Shareholders will sometimes hold shares in several companies, and it is tempting for them to borrow from one, to repay another.


Fred owns two companies called Peter Ltd and Paul Ltd, both with 31 December year ends. As at 31 December 2022 Fred owed Peter Ltd £100,000 and as at 1 September 2023 this is still outstanding. Fred comes up with a cunning plan to borrow £100,000 from Paul Ltd to pay Peter Ltd. He therefore physically withdraws the funds from Paul Ltd and clears the debt with Peter Ltd by 30 September 2023, happy in the knowledge that Peter Ltd no longer has a section 455 liability on 1 October 2023.

Does this work? At first glance it certainly seems to because the section 455 legislation operates at the level of individual companies. There is, however, a piece of anti-avoidance legislation (section 464A CTA 2010) which should always be checked. I do not think that this legislation can be applied in the above scenario because the loan by Paul Ltd would clearly be within section 455, albeit that the charge would potentially arise a year later than it did for Peter Ltd.

The position above would have been weaker if Paul Ltd had not had any cash to lend to Fred. In this case, Fred may have been tempted to settle the position through accounting entries. For example, Paul Ltd could have agreed to take on Fred’s loan from Peter Ltd with the end result being that Paul Ltd owed Peter Ltd £100,000 and Fred owed Paul Ltd £100,000. In these circumstances HMRC are very firm in their view that the Peter Ltd loan has not been repaid, and I probably agree with this view. Also, the anti-avoidance legislation mentioned above is more likely to be in point in these circumstances.

Forbes Dawson view

The above example seems to suggest that Fred could have a loan of £100,000 from Peter Ltd and Paul Ltd in perpetuity (extending the principle, Peter Ltd could make a £100,000 loan to Fred in September 2024 to allow him to repay the loan from Paul Ltd). This does seem counter to the principle of section 455 and HMRC say in CTM61602 that ‘looking at the legislation as a whole, and its purpose, there is no repayment here, rather S455 should apply to the increasing amounts withdrawn from the companies’. HMRC do however seem to be seeking something here that the legislation does not give them. They do then concede that if they are wrong, then section 464A CTA 2010 would apply, but this legislation seems tricky to apply here too for reasons mentioned above. Also, the anti-avoidance legislation does not apply where there is an income tax charge, and these loans would usually be subject to a benefit in kind charge. In summary, we think that the legislation does allow different companies to fund loan account repayments, as long as cash does actually flow so as to give rise to a proper repayment.

Significantly, this view seems to be supported by a GAAR advisory panel decision released on 26 April 2022. Here, they suggest that the ‘group’ scenario would have been so easy to legislate against, that the fact that this was not done must have been Parliament’s intention. This seems like something of a green light!




Sign up for our newsletter

Interested in receiving the latest tax planning ideas?

Sign up to Tax Bites – our weekly update offering practical but effective tax saving tips.

Contact Us

You can use this form to request us to give you a call or if you prefer just leave us a message. Please be sure to leave us a contact number or email address for you and we will get back to you as soon as we can.

0161 927 9277


Fairbank House
Ashley Road
WA14 2DP