Director had large overdrawn loan account and has since resigned/relinquished shareholding. I believe the loan write off has to be reported on form P11d but will the company have to stump up class 1A NIC on the amount written off?
Lisa
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Much appreciated
Not a situation I have encountered before so I am very grateful for your input and benefit of experience.
Yes, the overdrawn loan has been shown on previous CT600's and s419 tax paid accordingly which I believe will be repayable against the company's CT liability for the year in which the loan is written off.
As to when the loan was written off, I don't believe there is anything formally recorded. I suspect that in reality it would be deemed to have been written off the day the former director resigned and left the company. Therefore not sure if that makes any difference and about to look at references to s62 and s188 that you have referred to as well as s421.
Maybe, but I don't think so
S3 SSCBA 1992 charges NIC on earnings when they are paid. Reg22(2) SSCR 2001 charges NIC on payments that are not actually earnings but are payments on account of earnings. A charge under s421 is not a payment on account of earnings, therefore I don't think R22 can apply.
If the loan was written off after the director had resigned, s62 ITEPA cannot apply, but s188 will. However, s421 will take priority.
The write-off should be shown on form CT600a - you have completed one each year the loan was outstanding haven't you?
Getting bit technical for me now
The loan balance written off was £40K and if shown on P11D, it will be the former director that will be liable for tax on the benefit but does this now mean the company will be left with an NIC bill just to rub further salt in the wounds?
How and when is this class 1 NIC liability meant to be reported/declared and paid?
The director in question has already resigned and signed over his share for nil proceeds.
NI is still due
I don’t think I agree totally with Haggis, the write off of the loan is liable to tax under s421, agreed, but it is still liable to class 1 NI, under regulation 22.
See NIM12020, http://www.hmrc.gov.uk/manuals/nimmanual/nim12020.htm
Thanks
Not only the answer I was hoping for but clearly explained and supported with appropriate references - thanks again, been most helpful
Not Class 1A
The calculated benefit on a beneficial loan will be chargeable to Class 1A.
Where a loan is written off, and the write-off is by reason of his employment, the amount written off is chargeable as earnings: it follows that there will be a Class 1 NIC charge.
Where the loan has been subject to s419, and the write off is not by reason of emploment, s421 will apply (because it takes priority over s188 which would otherwise bring it into charge). A charge under s421 is neither earnings nor a benefit, therefore no NIC will be payable.