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Directors’ loans and section 455

30th June 2017 by

Following the changes to dividend taxation from April 2016, when the rate of tax charged increased from 25% to 32.5%, callers are asking how HMRC would allocate any repayments.


If there are separate loan accounts for, say, each accounting period, then the company and director can agree how to allocate any repayments between the different loan accounts.

If there is just one loan account then the repayment is usually set against the earliest debt first, unless the parties specify which debt has been repaid – see the last paragraph.

What you have to watch out for are the two bed and breakfasting rules in s464C CTA 2010.

i) s464C(1) – this catches loan repayments in one accounting period where further loans to the participator of £5,000 or more are made in the next accounting period and the additional loan is made within 30 days of the repayment. The earlier repayment is matched with the later borrowing, so you still have to pay the s455 on the earlier loan.

ii) s464C(3) – this section applies where the participator owed at least £15,000 to the company just before a repayment is made, they make a repayment, and at the time of the repayment, there is an agreement/understanding/arrangement that the participator can borrow back a further £5,000 or more. Again, the earlier repayment is matched with the later borrowings.

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