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Is Loan Write off Taxable?

Hi,

Mr A is sole director/Shareholder of Company

Mr B joins Company and is given 50% of the share capital and
becomes a director.

Mr B personally loans company £25,000

Mr B agrees to have £25,000 loan written down to £15,000 due to
Mr B  leaving company after disagreement with Mr A.

Accountants treat £10,000 write off as  income chargeable to corporation tax

Is this correct?

Thanks  in advance 

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By BKD
25th May 2012 08:01

Yes

.

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25th May 2012 08:59

Not so sure

Is there any authority for stating that it's taxable?  I would have my doubts - it's not a receilpt of the company's trade, so what actually makes it taxable?  It would be interesting to see if there's any precedent for that.

If it is taxable, it has been done very badly.  It would have been quite easy to subscribe for shares at a premium and then transfer those to A

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It's a loan relationship credit...

... in the company's hands.

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27th May 2012 21:02

Depends

I looked at a similar arrangement a year or so ago and seem to remember that if the loan related to the trade then it would be taxable. But if it could be argued that it was not related to the trade then it would fall into the loan relationship with connected persons rules and not be taxable.  How was the interst paid on the loan, if any, treated previously? Chances are that it will be a trading loan and therefore taxable.

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By BKD
27th May 2012 21:29

Connected parties

First of all, it doesn't matter if the loan was trade-related or not. It will fall within the loan relationship rules, and will be taxed either as a DI receipt or as a non-trade loan relationship credit.

As for connected party rules, they apply only where both parties are companies. As far as I am concerned, there are no ifs or buts - the credit will be taxable.

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Ditto

I share BKD's view.

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