I'm preparing accounts for a limited company to Nov 30th 2012. There is a debit balance directors loan outstanding at that date of around £6k. The company ceased trading in Jan 13 and the loan was never repaid due to insufficient funds by the director. In this circumstance, can I write off the loan as a bad debt at Nov 2012?
Replies (11)
Please login or register to join the discussion.
Was the director also a shareholder of the company? Had any s455 tax been paid on the loan. Is the company solvent? What is to happen to the company now?
Close company?
I'm assuming we are talking about a close company here?
Based on that assumption s321a CTA 2009 denies CT relief on the write off of a directors loan. Any s455 previously paid will be repaid to the company. Don't forget the write off is a deeded dividend, but it will also be subject to NIC.
Be careful with your terminology!
I'm assuming we are talking about a close company here? Based on that assumption s321a CTA 2009 denies CT relief on the write off of a directors loan. Any s455 previously paid will be repaid to the company. Don't forget the write off is a deeded dividend, but it will also be subject to NIC.
s321A does not apply to directors' loans. It applies to participator loans. In many cases the two will be one and the same, but certainly not always. The distinction is very important.
As for the NI charge on participator loans, it is definitely not automatic. HMRC's view is well-known, but they would have to be able to satisfy me that the loan write-off was an alternative to earnings before I would consider accepting a charge. To date, no Inspector has been able to so satisfy me and I have yet to see an NI charge imposed on any write-off that I have seen.
What are you saying?
To date, no Inspector has been able to so satisfy me and I have yet to see an NI charge imposed on any write-off that I have seen.
That you have successfully seen off challenges or there have been no challenges?
A pity
To date, no Inspector has been able to so satisfy me and I have yet to see an NI charge imposed on any write-off that I have seen.
That you have successfully seen off challenges or there have been no challenges?
It's a pity Ruddles hasn't responded to this. If they have successfully seen off challenges this could be of enormous importance for us. If not, the comment is devalued. Hopefully, it's the former.
Surely there is a distinction between a waiver / or release of a loan and the creditor company simply recognising an expected loss on the insolvency of the debtor participator. In the latter case the debtor remains as liable to repay the debt as he ever was, has received no benefit from the prudent accounting of the creditor and surely should not have to pay any tax or NI.
Is the debtor in formal insolvency proceedings? What is to happen to the company now? Left as dormant, struck off ...?
So the company will be solvent even If the loan to the director has no value? If so the loan can be recovered out of the distribution of the net assets of the company to the debtor. It is therefore misconceived to waive the loan, and thus create an income tax charge in the debtor's hands, rather than have it taxed as a capital disposal in the liquidation.
This article sets out the procedure etc etc
https://www.accountingweb.co.uk/topic/tax/directors-loan-accounts-get-details-right/465775
... and what to declare to HMRC and when