Write off Debit Balance Director Loan?

Write off Debit Balance Director Loan?

Didn't find your answer?

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.

By johngroganjga
06th Jul 2013 18:15

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?

Thanks (1)
avatar
By User deleted
07th Jul 2013 07:00

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.

Thanks (1)
Replying to johngroganjga:
By Ruddles
07th Jul 2013 09:41

Be careful with your terminology!

dreamcatcher wrote:
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.

Thanks (2)
Replying to ms998:
avatar
By andy.partridge
07th Jul 2013 10:11

What are you saying?

Ruddles wrote:

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?

Thanks (1)
Replying to johngroganjga:
avatar
By andy.partridge
09th Jul 2013 12:16

A pity

andy.partridge wrote:

Ruddles wrote:

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.

Thanks (0)
By johngroganjga
07th Jul 2013 12:04

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.

Thanks (1)
avatar
By bluesian1210
07th Jul 2013 13:18

Thank you all.  The director

Thank you all.  The director is indeed a shareholder - sole shareholder, sole director to the company.  No s 455 tax has been paid yet as this is the first year end of the business.  If the loan can be written off, I presume no s455 tax will be due?  Only the NI as everyone discusses.

Thanks (0)
By johngroganjga
07th Jul 2013 14:02

Is the debtor in formal insolvency proceedings? What is to happen to the company now? Left as dormant, struck off ...?

Thanks (1)
Replying to Portia Nina Levin:
avatar
By bluesian1210
07th Jul 2013 14:07

The status on cos house is "active - proposal to strike off"

Thanks (0)
By johngroganjga
07th Jul 2013 14:24

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.

Thanks (1)
Jennifer Adams
By Jennifer Adams
08th Jul 2013 12:39

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

Thanks (1)