Combining loan accounts

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Hi everyone

Has anyone ever come across a joint loan account, where one party was a director and the other was a member of staff?  I have a father and daughter limited company.  They both own one share, but only the father is the director.  The father is overdrawn, the daughter is well in credit.  They are asking me if they can join their loan accounts - neither having an issue with knowing whats owed to them individually, as they just draw on it as they need to.  

My initial thoughts are no, I cant see how this would be accceptable, for obvious reasons. I read an old post on here that suggested it might not be a problem - though that was based on two directors (father and son were mentioned).  I just wondered if anyone would like to put their view forward? I've only ever seen a joint husband and wife account, where both are directors.   

Even just a reference to the section in legislation that might attempt to cover such a topic would be useful.  

Thanks so much in advance!

Replies (4)

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paddle steamer
By DJKL
28th Oct 2016 14:19

Daughter needs to withdraw her loan and use funds to make a gift to Father who can then use funds to repay his liability (Not a direction of travel I have ever experienced in reality, tends to be the other way round)

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By Manchester_man
28th Oct 2016 14:52

You beat me to it!

Alternatively, a signed deed between the parties together with entries made in the books, stating that the loans are to be aggregated.

This could certainly be challenged by HMRC, and I have never seen this done, but in terms of legislation, I cannot find anything that says you cannot do this.

I would be slightly more comfortable with doing as DJKL says and getting a deed of gift signed.

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By FoxAccountancyServices
28th Oct 2016 15:30

Thanks so much to you both, for taking the time to reply.

DJKL - totally agree! Never seen it go that way before! My first thoughts on the correct approach, are as you say - to physically move the money and have a deed of gift in place - which could clear the fathers overdrawn loan account within 9 months of the year end, and hopefully appease HMRC that it was a bone-fide transaction.

Manchester_man - as you, I would be more comfortable with the above option, and I am guessing that the aggregation could only be done from today, not retrospectively, anyway? But, that said, I assume that would actually still repay his loan back, within 9 months - on the date of aggregation?

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Replying to FoxAccountancyServices:
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By Manchester_man
28th Oct 2016 17:56

Indeed. Both options are in effect the same. Offsetting a Cr balance against a Dr balance is, in fact, person A agreeing to use funds owed to that person, in order to settle Person B's indebtedness to the company.

The end result is the same both ways, but, physically carrying out the gift by Person A withdrawing funds and gifting to Person B who then repays his loan, holds more weight than a deed alone, should HMRC ever mount a challenge.

Regards

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