Section 464A Charge to tax: conferring benefit
9.Section 464A imposes a new tax charge if during an accounting period a close company is party to arrangements under which benefit is directly or indirectly conferred on an individual who is a participator in the close company or an associate of such a participator.
10.Section 464A describes such “arrangements” for the purpose of this section.
11.Section 464A also contains provisions which:
set the due and payable date for any tax chargeable under s464A;
introduce a rule so that for the purposes of section 464A, a participator in a company which controls another company is to be treated as also a participator in the controlled company; and
ensure section 464A only applies if the conferral of the benefit which would be chargeable does not give rise to a section 455 tax charge.
Example 2:
X, an individual, is a participator in a close company (C Ltd).
C Ltd and X are partners in a partnership. Under the partnership agreement, 80 per cent of the profits are allocated to C Ltd and charged on C Ltd at the corporation tax rate.
C Ltd leaves its profits undrawn on capital account in the partnership and X draws on them.
There is a benefit conferred on X because X has received funds from C Ltd, a company in which X is a participator and there was no section 455 charge on C Ltd and no income tax charge on X. If the funds had been transferred directly from C Ltd to X, they would have been chargeable to income tax (if transferred as remuneration or a dividend) or section 455 (if they were transferred as a loan).
Example 3:
Using the structure described in Example 2, C Ltd could alternatively have drawn its profit share from the partnership but reintroduced some or all of the funds into the partnership as a capital contribution. At the point X then draws on these funds and seeks to argue that a tax charge does not arise when those funds are withdrawn, a benefit is conferred upon X in a similar way as for Example 2.
