Company A lent Company B cash to help fund property development - 40% of project development cost was funded in return for 40% of the profit/loss. Where the development is loss making can Co A get bad debt relief on its share of the loss?
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I'm no expert but
Nick
I'm not sure that there is a loss here, rather a lack of income. How was the investor to get his share of the profit? Unless the actual capital loaned out is at risk of default, and you may need to look at the loan agreement to determine what if anything is referred to here, then what loss has been incurred.
I'm speaking from an accounting angle here not a tax viewpoint.
Hopefully other opinions will come in and help you.
D
Oi you can't do that!
You can't be awarded best reply for responding to your own question! You must return the award immediately.
So, if company A lends £100k and the development makes a profit £100k it gets back £140k, so makes a £40k profit. But if it lends £100k and the development made a £100k loss you are saying company B invoices company A for £40k and repays only £60k.
If the transaction is structured as a loan then I'd have thought that these would be trading loan relationships credits/debits. I am not sure what the alternative would be. I suppose you would have to treat as a joint venture and account for the profits/losses as trading profits or losses, in which case the 'loan' would not appear in the accounts would it? I'm not an accountant mind you so my bookkeeping knowledge is pretty sparse.
I'm not sure I deserve it either ...
.... but what you say doesn't quite ring true. A company isn't taxable on distributions and so if you treat as a dividend in company A then it won't pay tax on it and company B won't get a deduction. And you can't have a negative distribution so the loss situation doesn't sit well with that treatment. Also I don't see how a company can receive a distribution from a company which it doesn't have shares in, unless you are using the word 'distribution' in a colloquial sense. I can see that you could tax it as a distribution of profit i.e. not a distribution in the dividend sense. In that case yes I suppose a loss would be a NTLRD - provided that the advances are indeed structured as loans which must include some written terms for repayment I'd have thought. I'm not speaking from personal experience here, but I have seen this question a few times on AW and also in Taxation. I have something at the back of my mind about this which may surface over the weekend - or if you have researched then maybe you could provide a link. I'm not sure it matters as long as the profits are treated as trading profits and the losses as trading losses or relievable as NTLRDs, but how you account for I've no idea though, again, I suspect this will come down to the paperwork.