Can I convert a P&L loss to loan

Conversion of P&L loss to loan

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I have a client who has a large cfwd loss on his Balance Sheet. It goes back years and is no longer tax allowable. Can I convert this to a loan to give a more accurate picture of current trading and health?

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By johngroganjga
29th Jul 2019 09:11

Leaving aside for the moment whether you can, why would your client want to, given the tax consequences of shareholders taking loans from their companies (assuming it is a company we are talking about)?

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Replying to johngroganjga:
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By cheamboy
31st Jul 2019 11:48

Hi
Thanks for your response. The Company has a loss of £1M 'covered' by loans to Shareholders. This goes back over many years and, as far as I can ascertain, the tax implications have been covered. The loss is no use as against tax -too old. The company has been pootling along for a few years, slightly above dormant. The Company has been in the shareholders / directors hands for over thirty years. Used to be a high turnover / profit Company but was left to wither over the years. The Shareholders want to use it for a new venture, mainly nostalgic reasons, but a P&L loss cfwd of £1M would look bizarre.
My advice to them was let it slip under the water and invest £10 in a brand new untarnished Company, but I thought I'd investigate whether I can do something re offset Loss / Shareholders debt without unleashing the HMRC Tax dragon.
Regards

Chris

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Replying to cheamboy:
paddle steamer
By DJKL
31st Jul 2019 12:24

Do you not mean loans from shareholders?

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paddle steamer
By DJKL
31st Jul 2019 12:23

If you Have:

B Sheet

Loans from shareholders £900,000CR

S Capital say £100kCR
P & L Losses £1,000,000DR

the obvious thing is to subscribe for new shares in exchange for the loans to tidy up the balance sheet (though company will still show negative P & L reserve post event and so will have future dividend paying issues to consider.

However there are considerations re tax- could existing shareholders get individual tax relief if company folded and loans irrecoverable etc, losses on share capital re subscribed share which might be worth more to the individuals.

Frankly if that is the sort of balance sheet I would probably attempt to persuade client that Newco might be a better route, certainly if I could spring some personal losses that the shareholders/directors might use.

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