Section 419 tax...

[sixspeed]

Any accountants, or people who've experience this in the past, able to shed some light on how this works?


-andy-

[BMWM]

It only affects participators or their associates in a close company, in other words small company shareholder directors, and only those participators who owe money to their company.

Many participators lend money to their company, and charge/let the company pay personal bills as repayments of the loan. That is no problem unless the company makes more repayments than the balance of the loan, in which case the account is described as overdrawn, i.e. the participator owes money to the company.

If a participator withdraws profits from a company to which they are not entitled, the Exchequer does not receive its expected contribution. The withdrawal will often be in contravention of the Companies Act, but the Inland Revenue is concerned with the tax position.

Under Corporation Tax Self Assessment (CTSA) form CT600A has to report any balance remaining overdrawn 9 months after the Accounting Period End, but only if it has not been repaid. It is therefore important to make repayment within that period.

If there is an overdrawn balance which has not been repaid, 25% of the balance has to be remitted with the Return as tax. If the balance is subsequently repaid that tax is also repaid, but not for 12 months.

[eric mc]

Spot on BMWM - couldn't have put it better myself. The moral of the story is - if you have taken money out of the comapny and:

not treated it as salary and paid the relevant PAYE and NIC on it

or drawn it out through a director's loan account when the company owed you less than the amount you've actually drawn

or drawn a dividend or dividends out of the company in excess of the available distributable profits

your company will be facing a possible Section 419 tax bill.