Accountant recommendation: start up, writedowns

Requesting a recommendation to an accountant who is knowledgable on start ups and writedowns

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Hi All,

I work with a group who are seeking to speak with an accountant who can advise on how to treat writing off convertible debt used to finance the start-up of a new venture. Our existing accountant is unable to provide advice.

Our group provided the seed capital to a newly incorporated UK limited company, incorporated with £100 share capital. There are 3 shareholders, initially with 33%us /33% Shareholder1 /33% Shareholder2 ownership. We provided the 100k of seed capital in the form of a convertible loan, that upon conversion, would result in the capital structure  70% us, 15% SH1 and 15% SH2 (SH1 and SH2 would submit invoices and pay income tax on the relevant amount to result in their ownership equalling 15% post loan conversion).

The venture is a mineral exploration company and so far the venture has not panned out yet, all the seed capital has been spent on expenses and consultants (expenses) that resulted in us generating some proprietary data (possibly classed as IP?) and some land (assets). We have not converted the loan to equity. The group is exploring whether our tax bill can be reduced by writing off the 100k/ 

We would like advice on:

If we write off the convertible loan, how would the UK LTD treat this?

If we convert to equity, can we write off this investment, and if so, what happens to our ownership in the UK LTD?

To note, the UK LTD isn't completely dead, it just needs additional finances.

Any advice or recommendations are appreciated. 

Many thanks, J.

Replies (6)

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paddle steamer
By DJKL
01st Nov 2022 09:58

Was there not an accountant involved in creating the share/loan structure in the first place?

p.s. who has the missing share, currently you seem to have 33% =33 each which leaves one of the 100 adrift.

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By nrw2
01st Nov 2022 09:59

Jasper Mowatt wrote:

The venture is a mineral exploration company and so far the venture has not panned out yet

If there's one thing that mineral exploration companies are supposed to be doing it's panning?

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By Paul Crowley
01st Nov 2022 10:51

Does the accountant think what you are suggesting is a good idea?
If so then consider talking as a group to an alternative accountant
If you turned up at my door I would start with why?
Followed by where is the company controlled?
Then do all members live in the UK and are they all domiciled in the UK
And what exactly was the convertible debt?
was it just a loan?
Who is us? a company or people?
Finally do all the parties have other UK income

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By paul.benny
01st Nov 2022 10:52

I’m not quite sure from the OP whether your looking for an advisor or advice. If the former, I would commend your accountant for saying this is beyond their skill – but I would hope they could recommend someone.

That said, as DJKL asks, who advised on the original set up? Conversion of the debt to equity was presumably envisaged at the start, to I would hope consideration was given to the tax impact of doing so before agreeing to provide the funds.

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By Bobbo
01st Nov 2022 12:12

Jasper Mowatt wrote:

Hi All,

(SH1 and SH2 would submit invoices and pay income tax on the relevant amount to result in their ownership equalling 15% post loan conversion).

What on earth does this mean?

Jasper Mowatt wrote:

We would like advice on:

If we write off the convertible loan, how would the UK LTD treat this?

If we convert to equity, can we write off this investment, and if so, what happens to our ownership in the UK LTD?

By writing off the loan, presumably the right to convert to equity disappears too leaving the shareholdings at the original 33.33 / 33.33 / 33.33?

If you convert to equity, you could (should?) then consider if the resulting equity investment in the company is impaired. Such an impairment wouldn't change the ownership however unless you actually transfer the shares or the UK company is wound up.

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By tom123
01st Nov 2022 14:22

I always wonder who is trying to roll over who - when I see these kind of threads.

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