I am going to write of a directors loan account to the value of £12k. There are insufficent profits available to make dividends against this amount and as the company is in the construction industry it's unlikely there will be next year either. I am happy that this amount needs to be treated as dividend income (s415) and I know where to put it on the client's personal tax return. As the client is not a higher rate taxpayer this should not result in any additional tax for the client to pay (salary of £6k plus dividends of £22k plus write of DLA of £12k.
My problem lies with the HMRC guidance relating to CTM 61630 Close Companies: Loans to Participators: Release or Writing off of loan. It states that
1. "where the participator .....is also an employee, there is potentially also a charge under Schedule E rules. Any amount chargeable under s415 is not also charged as income from employment"
2. "Where the participator is an employee, the amount written off will attract Class 1 NIC if it is remuneration or profit derived from employment"
My take on this being that if I am treating the £12k as dividend income then there is no charge to Class 1 NIC. Can anyone tell me if this is right? I have no idea what they mean in point 2!
Many thanks in advance!