Release of debt due to director

Release of debt due to director

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A company's computer and certain trading expenses were paid for personally by a director in the year ended 31 December 2000. Capital allowances were claimed on the computer and expenses claimed as trading expenses in the usual way. The amount of the debt due to the director was carried forward. During the next year the debt due to the director has been formally released by formal deed. S 94 ICTA requires the trading expense element of the debt to be brought in as a trading receipt in the year of release. How should the element of the debt relating to the computer be dealt with for Corporation tax purposes and how should the release be reported in the accounts?
 

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By User deleted
25th Jul 2001 10:40

capital allowances
Director may be able to claim CAs on the computer, subject to the proviso in CA 2001 s 36 that it is provided necessarily in the performance of the employment. This will depend on the facts of the case.

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By Accounting WEB
24th Jul 2001 18:51

Why do it?
Seems to be a good way of making sure that no allowances are claimed by anyone. The company would appear not to have incurred capital expenditure and so no allowances will be due. No disposal proceeds need to be brought in but I think you need to raise the issue with HMIT and see about re-opening the preceding year. The director will obtain no allowance and the company has, effectively not had an allowance.

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By Accounting WEB
24th Jul 2001 20:56

I would simply credit the amount to P&L

A slight variation from Jims answer is to credit the amount to P&L account and disclose the release of debt by way of a note to the accounts. You are effectively taxed immediately while the computer is continuing to receive CAs until its short life asset period has expired. this treatment is similar to creditors ampunt which is in dispute but subsequently agreed between parties to write off.

Jay Tanna

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