S455 tax is payable by a company if a Director’s Loan Account is overdrawn at the end of the company accounting year and hasn’t been cleared nine months later. It is essentially to ensure that cash drawn by directors from a company is taxed. The company must pay 32.5% tax on the amount remaining overdrawn 9 months after the end of the accounting year. It is aligned with the higher dividend tax of 32.5%.
S455 tax can be reclaimed once it has been repaid, although the repayment will only be made by HMRC nine months and one day after the end of the accounting period in which the loan was repaid.
We often get asked what is the position regarding s455 tax in MVLs.
HMRC has recently resourced its manual with useful guidance on the tax implications of overdrawn directors’ loan accounts and distributions in MVLs, which you can view here.
The key message is that distributions in specie of the director’s loan to a director do constitute repayment (and cash does not need to be circulated around).
That is consistent with our experience of seeking to recover S455 tax where the DLA is cleared by distribution in specie. HMRC are happy to take the date of distribution as the repayment date, and grant relief 9 months and 1 day from the submission of the liquidation Corporation Tax return, which aim to get in as quickly as practicable; certainly better for the client than potentially waiting 21 months from the date of liquidation for the S455 tax to come back.
Get in touch
If you would like to discuss your options then why not contact the team at Henderson Loggie to find the best solution for you.