Tax treatment of loan written off for sole trader

Tax treatment of loan written off for sole trader

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I have a sole trader client who runs a public house. Back in 2006 the brewery put new plant and machinery in the pub and the client took on a loan with them for the value, about £13k. Capital allowances were claimed on the cost of the P&M and the loan shown in the balance sheet.

However the brewery never collected any repayments and have now written off £9k of the loan.

My question is where the £9k loan write off should be shown in the accounts and if it is chargeable to income tax. 

Thanks for any thoughts 

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By vras
21st Jan 2016 20:40

Pub Loan

It may be worth checking again with the brewery.

It may be that the loan was being reduced by a 'barrellage discount'. The brewery agrees to the loan and it is written down according to the number of barrels ordered by the publican.

No money changes hands, but the publican is paying a small premium over and above the normal wholesale price. This is in effect a loan repayment.

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paddle steamer
By DJKL
21st Jan 2016 23:00

If a discount might there be a vat implication re same?

I used to , years ago, treat these as credits to cost of sales, but if it is a discount you probably want to be clear  what it is for. Is there a loan agreement you can review?

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