Create ‘breathing space’ for section 455 charge

Any loans to participators (broadly shareholders) that are outstanding nine months after the year end will be subject to what is known as a ‘section 455 charge’. This means that the company making the loan has to pay 33.75% of the loan’s value to HMRC at that time. Once the loan is either repaid or written-off (which has income tax implications) then the company can ask HMRC to repay the charge nine months after the year end in which it was repaid or written off.


Christmas Ltd has a year end of 31 December 2023 and Santa borrowed £1m from it on 15 November 2023 to buy Mrs Claus a diamond necklace. If this loan is outstanding on 1 October 2024, then Christmas Ltd will owe HMRC £337,500 by way of a section 455 charge. The company will be able to reclaim this charge back if the loan is either subsequently repaid or written off and such a repayment would be due nine months after the repayment or write-off.

However, more time can be ‘bought’ by changing the company’s accounting period…

Changing a period

It is relatively easy to shorten an accounting period, and this can be done without limit, but it either needs to be done for the company’s current financial year or the one immediately before it. Therefore, consider the above example. Santa may be concerned as 1 October 2024 comes around that the company does not have the funds to pay a section 455 charge (because it is spending a lot on presents and the kids are not paying for them!). If Santa was to shorten the 31 December 2023 accounting period of Christmas Ltd to 31 October 2023 then the £1m loan would have been made in the year ended 31 October 2024 and therefore the section 455 liability is pushed along until 1 August 2025.

Forbes Dawson view

This kind of planning will be particularly attractive when short term breathing space is required, either to repay loans or for the company to pay its section 455 liability. Also, sometimes it will make sense for income tax reasons for a shareholder to delay paying themselves dividends until a later tax year.

This could also be useful in a scenario where there is an imminent deal envisaged. Here, the shareholder will want to ‘clear’ the loan off through capital treatment on an exit and may not want the complexity of dealing with an outstanding section 455 repayment in the context of a deal.

This may also be useful for shareholders who wish to take advantage of a short-term ‘bridging loan’ from their companies while mortgage rates settle down (where they otherwise need to renew their terms). It should be borne in mind though, that there will still be a benefit in kind charge on the loan for employee/director shareholders if it is interest free.  Clearly, at its best this planning can only kick the section 455 liability forward into the future…




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