Removing Directors balance OWED BY Company

Removing Directors balance OWED BY Company

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Director client has only single share in company and now looking to transfer share and resign directorship (Share sale £1)

Balance sheet is currently all cleared down and tidied up to leave approximately £1 (credit) Share Capital £7999 (debit) loss on Retained Earnings and represented by £8,000 (credit) BALANCE OWED TO Director.

The company may start to trade in the future under new ownership but by agreement there is no chance of a repayment ever being made to the past director.

My understanding is that to waiver loan now as a write off to P&L is taxable on company (so not a good option)

Possible alternative being suggested is turn directors loan into share capital then dispose of the shares and make a capital loss personally.

In the above example that would become £8,000 (£8,001 cost of shares less proceeds £1)

Does this option work? Is there anything that prohibits this?

Thanks in advance for any comments received.

Paul

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By gbuckell
22nd Sep 2011 09:54

No loss

The base cost of the new shares would be the market value of the consideration, i.e. nil, and so no capital loss would arise.

Unless there is a need to improve the balance sheet (e.g. for credit check purposes), he could sell the loan balance to the purchaser of the share for a small consideration. Assuming the company does well in the future, the purchaser can extract the loan balance subject only to capital gains tax (with the gain falling within his annual exemption).

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