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Limited company loan subject to S419 ICTA 1988 rules?

Hello,

I wonder if tax per s419 ICTA 1988 rules, or any other similar rules, would be due on the following:

The limited company in question has an accounting year-end date is 31 August 2011.  On 1 February 2011, it lent £40000 or so to an individual not related to the company in anyway.  This person was merely a personal friend of the company's Director.  This individual intends to repay it in full by 31 August 2012, but there is a chance they may not.  There also exists the chance of the company never recovering a penny from the individual.  But that's not really the issue right now.  Is any tax due on the £40000 (similar to S419 rules, where the tax would eventually be repaid on repayment of the loan) or do no such or similar rules apply; meaning that, for the time being, the amount should merely be shown upon the Balance Sheet as either 'other debtors' or 'investments'?

Any advice would be much appreciated.

Thanks.

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By BKD
30th May 2012 14:13

No s455 ( ex s419) tax

If the borrower is unconnected with any of the company's shareholders - associates being defined in the legislation - there is no charge to corporation tax on the outstanding loan.

 

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30th May 2012 14:44

The company might be contravening it's articles if it has lent money without good purpose and a less than commercial rate of interest. Similarly the directors may be failing in their fiduciary duty and be called to account by the shareholders.

Why was the money lent? 

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31st May 2012 12:52

Loan relationships

If the loan does go bad then the company won't get CT relief for any write-off due to the unallowable purpose rule which denies a LR debit for a loan which is not in the business or commercial interests of the company - which this clearly isn't.

 

kmtaxconsultant.co.uk

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