What is the section 455 tax charge?

Question

Accepted Answer

Here is a comprehensive explanation of the section 455 tax charge.

---

## The Section 455 Tax Charge

### What the law says

**The basic charge**

Section 455 of the Corporation Tax Act 2010 (CTA 2010) imposes a tax charge on a **close company** when it makes a loan or advance to:
- a **participator** in the company, or an associate of a participator;
- the trustees of a settlement where a trustee or beneficiary is a participator or associate; or
- a limited liability partnership or other partnership where a partner is a participator or associate of a participator.

**Amount of the charge**

The amount due from the company is treated **as if it were corporation tax** for the accounting period in which the loan is made. The charge equals **the dividend upper rate** (as specified in section 8(2) of ITA 2007) applied to the amount of the loan or advance. This rate-linking mechanism replaced the former fixed 25% rate for loans made on or after 6 April 2016.

**When is it due?**

The tax is due and payable (under section 59D of TMA 1970) on **the day following the end of the period of 9 months from the end of the accounting period** in which the loan or advance was made.

**Deemed loans**

A close company is also treated as making a loan where a person **incurs a debt** to the close company, or where a **debt owed to a third party is assigned** to the close company.

**Exceptions (section 456)**

Section 455 does **not** apply to:
- Loans made in the ordinary course of a money-lending business;
- Trade debts for goods/services (unless credit exceeds 6 months or is longer than normally given to customers);
- Loans to trustees of a charitable trust applied solely to charitable purposes;
- Loans to a director or employee of the close company (or an associated company) where: (a) the loan does not exceed £15,000 in total; (b) the borrower works full-time for the company; and (c) the borrower does not have a material interest in the company.

**Relief on repayment (section 458)**

If the loan is subsequently **repaid, released, or written off**, relief is available under section 458 CTA 2010 against the section 455 charge.

**No loan relationship debit on release**

Where a loan gives rise to a section 455 charge and the debt is subsequently released or written off, **no debit** may be brought into account for loan relationship purposes in respect of that release or writing-off.

**Interaction with income tax on the individual**

If the company releases or writes off the loan, a separate **income tax charge** arises on the individual participator under section 415 of ITTOIA 2005.

---

### HMRC guidance / practice

HMRC notes that loans made by a close company to a director or employee who is a participator (or associate of a participator) **may be chargeable under section 455 CTA 2010 on the company**, in addition to a potential beneficial loan charge under section 175 ITEPA 2003 on the individual. Importantly, **a section 455 charge on the company does not replace any charge on the recipient** for having the benefit of a beneficial loan.

HMRC also confirms that the section 455 charge is linked to the **dividend upper rate** (formerly a fixed 25%) for loans made on or after 6 April 2016, and that section 458 CTA 2010 provides relief where the loan is repaid or written off.

---

### Summary

In short, the **section 455 charge** is a corporation tax-like charge levied on a close company when it makes a loan to a participator (or associate) that remains outstanding. It acts as a deterrent against close company owners extracting funds as loans rather than salary or dividends. The charge is repayable (via section 458 relief) once the loan is repaid or written off, but a write-off triggers a separate income tax charge on the individual under section 415 ITTOIA 2005.

---