Shareholder Loans (Anti-Avoidance) Bill

A

Bill

to

make provision for further anti-avoidance measures in relation to Section 445 of the Companies Act 2006 Section 455 of the Corporation Tax Act 2010

BE IT ENACTED by the King’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

Section 1: Amendments to Section 456 of the Corporation Tax Act 2010

(1) Clause 4 of Section 456 of the Corporation Tax Act 2010 is amended as follows:

(4) Condition A is that—

a. the amount of the loan or advance does not exceed £5,000, and

b. that amount does not exceed £5,000 when taken together with any other outstanding loans and advances which were made to the borrower by—

i. the close company, or

ii. any of its associated companies.

Section 2: Amendments to Section 457 of the Corporation Tax Act 2010

(1) Clause 2 of Section 457 of the Corporation Tax Act 2010 is amended as follows:

(2) Relief is to be given from that tax, or a proportionate part of it, if—

a. the loan or advance or part of it is repaid to the company, or

b. the whole or part of the debt in respect of the loan or advance is released or written off, and;

c. no new loan or advance to the recipient is established within 2 years of the original loan date.

Section 3: Commencement, short title and extent

(1) This Act will come into force on the 6 April 2024

(2) This Act will extend to the entirety of the United Kingdom.

(3) This Act shall be cited as the Shareholder Loans (Anti-avoidance) Act 2023

This Bill was submitted by His Grace Sir /u/Rea-wakey KCT KT KD KCMG KBE MVO FRS, Duke of Dorset, Secretary of State for the Home Department, on behalf of His Majesty’s 33rd Government.

Opening Speech:

Deputy Speaker,

I now present the second of the anti-tax avoidance laws that I wish to bring to the House, this one tackling the Section 455 avoidance measure.

Under previous laws, it was a known tax avoidance scheme for employed shareholders of a business to extract profits in the form of a “shareholder loan”, which in effect operated as a tax free dividend to shareholders. While successive Governments have tried to curb this avoidance measure over time, including through amendments to the Companies Act 2006 to include Section 455 and it’s related clauses, a number of issues remain. Firstly, the existing anti-avoidance measure fails to tackle loans of less than £15,000, which is not an insignificant amount of money on which tax should otherwise be due. Therefore this Bill reduces that threshold to £5,000 in line with other tax legislation to ensure that only trivial loans which would be expected in the normal course of business (e.g corporate credit cards) are incurred. Secondly, despite the anti-avoidance legislation a tax avoidance known as “bed and breakfasting” remains prevalent - these transactions are carried out around the end of the accounting period to prevent the loans etc appearing on the company’s Balance Sheet but it may also be done around the date which is 9 months after the end of the accounting period as that is the trigger date for liability to the charge, thereby meaning that a temporary repayment of the same loan and the return of these funds 9 months after the end of the accounting period mean that the funds remain not taxable on a technicality. Finally, given shareholder loans are not subject to interest, even if these loans are eventually repaid the present value of the loan value will be lower when such profit is formally extracted and therefore taxed by HMRC, which the legislation fails to prevent. To tackle these issues, this Bill also creates a measure in which any repaid loans made within 2 years of a previous loan being made are treated as though the original loan remained outstanding, and therefore taxable under the Section 455 clause of the Companies Act.

It is the position of Her Majesty’s Government that shareholders must extract profit from their business through a legally authorised and taxable dividend, and we will do everything in our power to remove the opportunities for avoidance.

In combination with the other two pieces of anti-avoidance legislation I will be/have submitted to the House, these measures are collectively expected to raise £3.4 billion. This proposed revenue generation and these Bills were raised at Her Majesty’s Budget Committee and unopposed. My thanks go to my friend the Right Honourable /u/Phonexia2 for their assistance in costing.

I urge the House to rally behind this Bill.

(M: These costings are calculated as 40% of the tax gap for “Evasion” and “Non-payment”, given the difficulty of calculating the actual revenue generated from these measures).

This division will end on Saturday 17th June at 10pm BST.