PTP's Tax Tip No 17 - P11Ds: The ethics of getting it right

Q - Help! I am a junior member of staff preparing P11Ds. Our client's director's loan account at 6 April 2005 showed a balance of nil. Several days later it was £50,000 overdrawn (a practice that has repeatedly occurred over the last few years I am told). A dividend of £50,000 was declared to clear this in March 2006 from the profit of the year ended 31 December 2005. I am being told that since the balance at both the beginning and the end of tax year was nil, no loan benefit arises, but I am concerned about the question at Section H of the form asking for the maximum balance outstanding at any time in the year. I am sure there is a benefit on the loan, but my manager is demanding that I do not fill in Section H at all.

A - You are right to be concerned ' the declaration of the dividend cannot rewrite history, though some practitioners seem to think it can! As a matter of fact, whether the dividend can be written back into the 2005 accounts or not (and we are not going there), the balance was outstanding until it was 'paid' in March 2006 by presumably crediting the loan account. The guidance notes specifically ask for details where loans exceeded £5,000 in 2005-06. There is a loan benefit to be calculated and your manager is wrong. Be diplomatic and just show him/her a copy of the loan benefit working sheet 4.