HMRC has again been seeking to extend the scope and application of the ‘loans to participators’ rules formerly in s419 ICTA 1988 (now found in s 455 CTA 2010 et. seq. (see 21.20)). In RKW Limited and HMRC ([2014] UKFTT 151 (FT)), HMRC sought to argue that unpaid instalments of subscription monies for an investment in shares in a close company gave rise to charges under s455 on the basis that the investor had incurred a debt to the company and was a participant when that debt was incurred.

The Tribunal held that the investor did not incur a ‘debt’ to the company unless and until an agreed instalment payment fell due for payment but remained unpaid. In subscribing for shares the investor was adding capital not incurring a liability to repay monies borrowed or owed. A ‘debt’ was not incurred on a subscription for shares for a price payable in instalments. In any event, the investor was not a participator in the company when he subscribed for the shares.