UT/2024/000087 - [2025] UKUT 00287 (TCC)

Mr Chacko argued that both the respondents and the FTT appear to have approached this case on the incorrect basis that loans to directors fall within s 455. Shareholders are not the only “participators” as defined in s 454, but they are the typical example. It was not alleged that Mr Chan was a participator on any of the more unusual bases, e.g. as a loan creditor, and it was not alleged that he was an associate of a participator. The FTT uses the phrase “participants (directors or shareholders)”. Given that the FTT held that he was not a shareholder (and therefore, prima facie, not a participator), and did not find he qualified as a participator or associate of a participator for any other reason, loans to him would not fall within s 455. Directors are not participators simply by virtue of being directors.

The FTT’s decision at [97] – [100] is on the basis that HMRC were right to assume that a s 455 charge arises whenever profits have been suppressed on the basis that they are likely to have been extracted by the participants: i.e. there is no need to identify any particular amount lent to any particular participator. This is wrong for the reasons given in Stirling Jewellers [2019] UKFTT 44 at [357]:

“The statute is not a useful 'fall-back' which engages where a close company is found to have made an under-declaration. The statutes are clear that an assessment can only be raised where a close company can be shown to have loaned or advanced any money to an individual.”

The FTT described HMRC’s s 455 argument at [14] as that “the suppressed takings had been for the benefit of the participants (directors or shareholders) and had not been correctly recorded in the directors’ loan account…”

Mr Chan denied taking cash from the business. The FTT did not make any finding that Mr Chan’s evidence on this was false. Moreover, his evidence that he had not taken money from the business was not rejected.

Mr Chacko submitted that it is hard to see how a s455 charge can arise where the FTT found that the individual HMRC accused of withdrawing money was not a shareholder and did not find that he had withdrawn money. Further, it is clearly not fanciful that the Upper Tribunal could endorse the approach in Stirling Jewellers.