Everybody knows about the tax charge which arises where a loan is made by a close company to a participator or their associates. CTA 2010 s 455 requires the company to make a payment to HMRC equal to 33.75% of the loan. The company can recover the amount from HMRC under s 458 if the loan is repaid to the company, or if the debt is released or written off – although of course if the loan is released or written off, it becomes taxable as income on the participator under ITTOIA 2005 s 415.
The meaning of released or written off is therefore crucial in determining the tax position – and this was examined in the recent case of Quillan v HMRC [2025] UKFTT 421 (TC).
What happened was that Mr Quillan had an overdrawn loan account of £400k and when the company was wound up, the liquidator sought repayment. Unfortunately, Mr Quillan had insufficient assets to repay the money.
The liquidators enquired of the creditors whether they wanted to finance an action for recovery, but they didn’t – and the company was dissolved. The loan was not released or written off by the liquidator – but he would be able to restore the company and pursue the debt if Mr Quillan were to come into a substantial sum of money.
The view of HMRC is that if the company (or the liquidator if the company is being wound up) does not appear to be trying to recover the loan, they will treat the loan as being written off and charge the participator to tax on the relevant amount. This is set out in the Company Tax Manual at CTM61560 as follows:
‘where the liquidator does not write off or release the loan balance, but, on a balanced view of the facts, it is clear that the company and/or liquidator are not intending to pursue the outstanding loan, e.g. where they are not making any attempts to collect it or have given up any attempts to do so, then we should argue that the loan has been written off and that S415 ITTOIA05 should apply to the relevant amount.’
The tribunal held that this analysis was wrong. There was no release of the loan, nor had it been written off, and there was no basis for the assessment of tax on Mr Quillan.
Not for the first time in connection with a 455, the reasoning set out by HMRC in their Manual has been shown to be wrong. They did exactly the same last year (with the same result) in connection with recycled loans, but in the end they did the right thing and got the law changed so that it coincided with their view, by introducing CTA 2010 ss 464ZA and 464ZB.
Whether we like the legislation or not is another matter, but this must be the proper course.
Everybody knows about the tax charge which arises where a loan is made by a close company to a participator or their associates. CTA 2010 s 455 requires the company to make a payment to HMRC equal to 33.75% of the loan. The company can recover the amount from HMRC under s 458 if the loan is repaid to the company, or if the debt is released or written off – although of course if the loan is released or written off, it becomes taxable as income on the participator under ITTOIA 2005 s 415.
The meaning of released or written off is therefore crucial in determining the tax position – and this was examined in the recent case of Quillan v HMRC [2025] UKFTT 421 (TC).
What happened was that Mr Quillan had an overdrawn loan account of £400k and when the company was wound up, the liquidator sought repayment. Unfortunately, Mr Quillan had insufficient assets to repay the money.
The liquidators enquired of the creditors whether they wanted to finance an action for recovery, but they didn’t – and the company was dissolved. The loan was not released or written off by the liquidator – but he would be able to restore the company and pursue the debt if Mr Quillan were to come into a substantial sum of money.
The view of HMRC is that if the company (or the liquidator if the company is being wound up) does not appear to be trying to recover the loan, they will treat the loan as being written off and charge the participator to tax on the relevant amount. This is set out in the Company Tax Manual at CTM61560 as follows:
‘where the liquidator does not write off or release the loan balance, but, on a balanced view of the facts, it is clear that the company and/or liquidator are not intending to pursue the outstanding loan, e.g. where they are not making any attempts to collect it or have given up any attempts to do so, then we should argue that the loan has been written off and that S415 ITTOIA05 should apply to the relevant amount.’
The tribunal held that this analysis was wrong. There was no release of the loan, nor had it been written off, and there was no basis for the assessment of tax on Mr Quillan.
Not for the first time in connection with a 455, the reasoning set out by HMRC in their Manual has been shown to be wrong. They did exactly the same last year (with the same result) in connection with recycled loans, but in the end they did the right thing and got the law changed so that it coincided with their view, by introducing CTA 2010 ss 464ZA and 464ZB.
Whether we like the legislation or not is another matter, but this must be the proper course.
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