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Aspect Capital Ltd. v HMRC – loans to employee shareholders in a close company

Employee shareholders of a close company were invited to participate in an arrangement under which they acquired further shares in that company from an EBT on terms that the company funded the employee’s obligation to pay for the shares. This facility was expressed not to be a debtor-creditor relationship, but it did purport to convert into a debt due to the company upon certain events such as termination of employment, and would be waived if, for example, the employee died. Notwithstanding the efforts made to avoid the immediate creation of a debt owed by the employee to the company, it was held by the First Tier Tribunal that the arrangement did amount to a loan (not an “advance”) within the meaning of s 419 ICTA 1988 (now s 455 CTA 2010) by the close company to the employees. It therefore attracted a charge to tax under that section as a ‘loan to a participator’. The case illustrates that if an employee of a close company acquires shares in that company on deferred payment terms under arrangements pursuant to which the employee incurs an indebtedness to the company, a liability will arise under s455 CTA 2010.