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Writing off directors loan

Apologies if this has come up before I tried a search but could not find anything.

Husband and wife shareholders have overdrawn loans of around £7000. One person is also a director. Both were drawing salary and dividends.

Company not trading at the moment so no further funds expected in near future but company being kept active as trading to be resumed at some point.

Can the loans be written off to the P+L and if so how are they categorised on the P+L?

I know there is no CT deduction. Would the loans be treated as dividends in the shareholders hands rather than under paye.

The debit to the P+L would cause the BS to be negative - would this be a problem?

Replies would be greatly appreciated!

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Directors' loans

You don't state how long the loans have been outstanding for but you need to check that you have complied with s455 (the old s419), if you have and the loans have been outstanding long enough writing them off would enable the tax paid (25% of each loan) to be repaid to the company so, a little bonus.

What is the position of distributable reserves?  If sufficient you could simply declare a dividend passing the credit to the accounts to avoid writing off.  It sounds as if the reserves are insufficient given that the write off would create a negative BS but writing off the loan will trigger an NIC liability.  Pay a dividend as far as you can.  Writing off the loan will be deemed to be a dividend so IT under PAYE will be avoided, but not NIC.

As the loans exceed £5,000 there is currently a benefit in kind issue, if the loans don't need to be repaid could you get this balance to £4,999 at which point the BIK issue will no longer apply.

Hope this helps with some of the query.

 

 

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Paul

Thanks for your reply. The loans have only been outstanding since January and the year end is 31 March so no s.455 paid.

Each loan is under £5000 so presumably no BIK issues.

You are correct there are no distributable reserves left hence could not declare a dividend. But writing off the loan at 31 March would make the reserves negative so am thinking there would be an issue with the dividends already declared being excessive?

For a write off, how is the NIC liability dealt with - is it a company or personal debt?

Thanks in advance

 

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