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Repayment of loans to participators

Everyone knows that when a close company makes a loan to a participator (or to an associate of a participator) tax is (subject to one or two statutory exceptions) chargeable under CTA 2010 s455 - probably still better-known in its previous incarnation as ICTA s419. And when the loan is repaid (or released) any tax which has been paid is in principle repayable by HMRC (though normally not until nine months after the end of the accounting period in which the repayment or release is made). It does not matter that many years or decades may elapse between the loan and the repayment: in principle the tax is repayable.

And there's the rub: "any tax which has been paid". Understandably, HMRC will repay only tax which has been paid in the first place: and (tell it not in Gath) it will sometimes have happened (particularly in years before self-assessment) that s419 liability will have been overlooked and never assessed. So - since it is unsafe to infer payment of tax from the mere existence of the loan - what evidence will be required that tax has in fact been paid?

Now, you might think that given that everyone knows from the outset that any s455 / s419 tax is potentially repayable (and is, in effect, not so much a payment of tax as a compulsory non-interest-bearing deposit with HMRC for the duration of the loan) HMRC might themselves keep a permanent record of the amount potentially repayable. And in the old days when every Tax District (remember those?) had a dusty filing room full of ancient buff files overseen by a retired policeman who could magically put his hand on any piece of paper created at any time in the previous 20 years or more this might have been true. But experience suggests that in the sleekly efficient world that is the modern HMRC this may no longer be true (if it ever was) and that records of payment may disappear into the ether much earlier.

The point is this: when it comes to seeking repayment of tax years after the loan was made you won't always be able to rely on HMRC being able to satisfy themselves from their own records that tax has been paid. So get evidence of payment when you pay, and keep it: it may be (literally) worth its weight in gold.