S455 Tax - Do I need to be concerned?
Section 445 (S445) tax is paid in respect of Directors' Loan Accounts in some circumstances. The contents of S445 can be found in The Corporation Tax Act 2010.
What are Director's Loan Accounts?
A director's loan is any money received by a director, or their close family, from a company which is other than the following:
- Expense repayment
- Money they have previously paid into or loaned the company
A director's loan isn't considered to be a payment in the same way as salary or dividends, and accurate records must be kept. These are known as a Director's Loan Account (DLA), or Director's Current Account.
When does S445 tax need to be paid?
If a director's loan is repaid within 9 months of the end of the relevant Corporation Tax accounting period, then generally there is no tax to pay.
However, any overdue payments will be subject to S445 tax, chargeable at 32.5% of the outstanding loan balance.
Can S445 tax be reclaimed?
S445 tax which has been paid can be reclaimed 9 months and 1 day after the end of the Corporation Tax accounting period, once the loan has been repaid, written off, or released. Claims must be made within 4 years. Note: Interest paid cannot be reclaimed.
How can S445 tax be reclaimed?
Making a claim within 2 years
If a claim is being made within 2 years of the loan being taken out Form CT600A should be used when:
- preparing a company tax return for the same period; or
- amending a tax return online
If the tax return is for a different accounting period then the one when the loan was taken out, Form L2P should be used instead. This form should also be used if you are amending a tax return in writing.
Making a claim after 2 years
If there have been 2 or more years following the end of the accounting period, Form L2P should be used. This form can be included with the latest company tax return.
Do I have to report a “benefit in kind”?
If the DLA exceeds £10,000 at any point during the year, it is considered a “benefit in kind”. This must be reported using the P11D form as part of the director's self assessment tax return.
Tax may need to be paid on the loan at the official rate of interest. As well as this, the company will need to pay Class 1A National Insurance at the rate of 13.8% on the full amount of the loan.
In a similar way, if interest has been paid on the loan below the official rate, the discounted interest will be classed as a “benefit in kind” and should be reported in the P11D. In this case, tax may need to be paid in respect of the difference between the official rate and the discounted rate.