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Director's overdrawn current account

Director's overdrawn current account

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What is the position regarding providing for Section 455 tax in a company's accounts in the following scenarios:

  1. The overdrawn balance is repaid within 9 months of the year end. Presumably no provision is necessary as the Section 455 tax will not be payable.
  2. The overdrawn balance is repaid 12 months after the year end. The Section 455 tax is payable but also repayable by HMRC. Presumably the Section 455 tax is shown as a current liability but also as a current asset as tax recoverable.
  3. The overdrawn has not been repaid when the accounts are published but may be repaid within the next year. Presumably the Section 455 tax is shown as a current liability. What about the Section 455 tax recoverable, if and when the overdrawn balance is repaid?

 

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By johngroganjga
06th Jul 2016 16:17

My view is that you don't account for S455 tax at all until it is paid.

When it is paid it is obviously a debtor as long as the loan on which it has arisen is.

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By TerryD
08th Jul 2016 16:44

I can see the logic in John's answer, and it certainly has the advantage of keeping things simple (I, like John, am a great lover of simple). However, I think that unless you have evidence that the loan will be repaid within 9 months of the year-end, then I think that, technically, you have a liability - there is no post balance evidence to show that the liability, which exists as things stood at the year-end, will not be payable.

So to answer your question on that basis:
1. Correct.
2. Correct, but the debtor is due more than 12 months after the balance sheet date.
3. As 2.
Note that the liability and asset cannot be netted of because one is current, but the other is not.

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By lionofludesch
08th Jul 2016 16:52

The key question is when are you preparing these accounts?

If you have December accounts and prepare them the following June, you don't know that there will be a s455 liability. The director has until the end of September to repay his loan - in cash, by dividend, whatever. Hence, there is no liability at that point.

On the other hand, if you're preparing them in October, you know the position to the penny.

I agree with John.

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