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Company in liquidation how to treat withdrawals

Directors have made withdrawals to directors loan account but the company is insolvent

I have been asked to prepare a personal tax return for a director of a limited company who had made withdrawals from his directors already overdrawn loan account.

The company has now been liquidated as it was insolvent,  The company would have had some distributable profit from which dividends could have been paid, however no dividend minutes have been voted nor accounts produced. Am I correct in thinking that these withdrawals awould be added to the assets of the company as an overdrawn directors loan account and not taxable in the hands of the director?


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01st Feb 2018 20:17

Hi there. I'm an IP and can help with this.
You are correct - if there are withdrawals which are not dividends and have simply been allocated to the loan account, then the loan account will (if it is overdrawn) be an asset of the company which the liquidator will want to attempt to collect.
Even if there were distributable reserves, the fact that the company is now insolvent means that the directors have left it too late to declare a dividend and it cannot be done retrospectively now the company is in liquidation.

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