What does section 554Z2A of ITEPA 2003 do in relation to close companies?

Section 554Z2A prevents a double tax charge where a close company arrangement triggers both the disguised remuneration rules in Part 7A and the loans to participators rules. If the close companies gateway under section 554AA is the only reason Part 7A applies, the Part 7A charge can be switched off provided the loans to participators charge is properly dealt with.

What is the payment condition under section 554Z2A for disapplying the Part 7A charge?

The payment condition requires that the net section 455 charge — the section 455 tax less any section 458 relief for repayments, releases or write-offs — is either paid in full by the due date or is nil. Section 458 relief applies only where the repayment, release or write-off and the related claim both occur on or before the due date.

What is the consent condition and when does it apply under section 554Z2A?

The consent condition is a fallback where the payment condition is not met. It is satisfied when the section 455 charge has been properly reported in the company's tax return and an HMRC officer considers it appropriate to disapply the Part 7A charge. This gives HMRC discretion to relieve the charge where the company has been transparent in its reporting.

How does section 554Z2A apply when a loan to a participator is released under section 415 ITTOIA 2005?

Where the relevant step gives rise to a charge under section 415 of ITTOIA 2005, which taxes the release of a loan to a participator in a close company as income of the individual, the Part 7A charge is disapplied automatically. There is no need to satisfy either the payment condition or the consent condition.

Income Tax (Earnings and Pensions) Act 2003 section 554Z2A

Exception to section 554Z2(1): close companies

Section 554Z2A sets out when the loans to participators rules take priority over the disguised remuneration (Part 7A) charges where arrangements involve close companies.

Where a relevant step falls within the close companies gateway and also triggers a charge under the loans to participators rules or a charge on release of a loan to a participator, the Part 7A income tax charge is switched off
For loans to participators charges, the Part 7A exemption applies if either the section 455 tax is paid in full by the due date (the payment condition) or the charge is properly reported and HMRC consents to disapplying Part 7A (the consent condition)
The net section 455 charge is the gross charge less any section 458 relief for repayments, releases or write-offs claimed on or before the due date
Where the relevant step instead gives rise to a charge on the release of a loan to a participator under section 415 of ITTOIA 2005, the Part 7A charge is disapplied without any further conditions

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