I am pleased to say this is a very rare circumstance so would appreciate any feedback. I have a small company client who recently terminated a fellow director after discovering money was taken without consent and this has become a police matter and I suspect will take time to conclude. The company is unlikely to see the funds repaid. The existing director does not consider this a directors loan but theft. How should this be accounted for with regards the annual accounts and corporation tax?
Many thanks for any feedback.
Sean
Replies (7)
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HMRC business income manuals ..
give HMRC's view based on previous case law and links to the relevant pages are below:-
http://www.hmrc.gov.uk/manuals/bimmanual/bim45855.htm
http://www.hmrc.gov.uk/manuals/bimmanual/bim37810.htm
I trust this helps.
The accounting treatment is obvious.
Whether the expense attracts corporation tax relief is what the previous post is about.
Usually...
I credit the swag control account and debit stock with fair value of my stash.
Obvious is subjective!
But I would say not allowable and to avoid any s455 issues if here are sufficient reserves I would vote a dividend if they are a shareholder (if they are that may be a different can of worms - not knowing this or the sums involved doesn't help give a full answer). I may even inform HMRC of the dividend so they can pursue any higher rate tax it mat attract.
Ok, so
... but
http://www.hmrc.gov.uk/manuals/bimmanual/bim37810.htm
says:
Money appropriated by a controlling individual is an application of profits not an expense of earning profits and no deduction is due.
Therefore it is an adjustment to reserves (treated the same as a dividend)and doesn't hit the P&L!
HMRC are taking about the tax treatment. What do they know about how to do accounts? Hiding losses as reserve movements violates all the accounting rules in the book. If it's not allowable for tax it's added back in the tax computations.