A and B own a Ltd company 50:50 - InvestCo.
A owns another company 100% - PropertyCo.
A is owed £50,000 from InvestCo.
InvestCo loans £50,000 to PropertyCo.
A withdraws £50,000 from PropertyCo.
Year 1 (30/06/2017): A agrees to w/o the £50,000 he is owed by InvestCo – creating a loan relationship credit in InvestCo which is taxed at 19% - £9,500 CT bill.
Year 2 (30/06/2018) PropertyCo agrees to w/o the £50,000 it is owed by A – creating a £50,000 deemed dividend for A, HR tax payer so £16,500 IT bill.
Year 3, A and B decide they need an accountant who discovers the above transactions have taken place (with meeting minutes to back them up) and the appropriate CT bill hasn’t been paid (the IT charge falls into 2018/19).
By not understanding what they were doing, A has essentially landed themselves with a tax bill of £26,000 to come back to the same place they were in before they started, i.e. having £50,000 in their bank.
(Not the actual figures but not far from what has happened)
Would it be unethical for a document to be produced now that basically says that all 3 agree to offset the amounts owed to each other, giving A back his £50,000 without the accompanying tax bills?
The meeting notes may get misplaced…