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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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)?
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.