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DLA Write off

DLA Write off

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I have a company with large reserves, the shareholders do not wish to take out any money from the company other than to fill their BRB. 

The company has 5 shareholders, all equal, all directors, one of which has an outstanding directors loan of £75,000 owe to the company. A family.

The company is not necessarily bothered about the immediate recovery of the s.455 charge on the outstanding loan but they want the shareholders to all have an equal £nil DLA balance.

The shareholders are all happy for this to be written off and I would just like to make sure I'm not missing anything.

1. DLA written off - deemed £75,000 dividend on the director's self-assessment. Does some form of declaration need to be made on the self-assessment or is it simply added it into the UK dividend box?

2. Debit Loan Write Off. Credit DLA - no CT tax relief.

Nothing else needs to be reported? No further consequences to think about?

Thank you, in advance, for any help.

Replies (13)

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By Paul Crowley
13th May 2021 12:38

Indulge me
Why not a real dividend?

I always prefer to have some credits for director shareholders to cover those awkward little errors.

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Replying to Paul Crowley:
By johngroganjga
13th May 2021 12:54

Probably complicated by there being four other shareholders who would need to execute waivers. I am assuming all shares are in the same class of course.

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Replying to johngroganjga:
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By TheNovice
13th May 2021 14:51

Hi John,

That's right and yes apologies, I should have mentioned they are all the same class of shares.

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Replying to Paul Crowley:
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By TheNovice
13th May 2021 14:51

Hi Paul,

Thanks for your reply.

As John mentioned the other shareholders would receive or need to waiver their dividend. I was under the impression HMRC doesn't like waivers too much so we have decided to stay away from that option.

Agreed though that was the origional suggestion.

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By accountaholic
13th May 2021 13:48

If the director is going to pay income tax anyway as deemed dividend, you could instead account for it as PAYE. Director pays slightly more tax & NI, and company pays NI, but then gets CT relief, so offsets to some extent. Director would have to reimburse company for PAYE/NI but would have nothing to pay on self assessment. Company then gets S455 repayment.

I might have tied myself in a knot here making it more complicated than simple write off, and don't have time now to check NI/income tax increase v CT saving.

Something to think about instead of the crossword later!

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By Paul Crowley
13th May 2021 15:24

Waivers are comparatively easy
Never had any comment from HMRC
Anyone else ever had a dividend waiver problem?

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Replying to Paul Crowley:
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By Tax Dragon
13th May 2021 15:39

You ought (IMHO) to explain why you think it's a better option.

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Replying to Tax Dragon:
By Duggimon
13th May 2021 16:43

Well there's HMRC's insistence that deemed dividends attract class 1 NIC, that's a fairly big motivator for declaring it as a dividend the old fashioned way.

Of course if the company has insufficient reserves (£75K or £375K depending on who you speak to) then it may be no option at all.

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Replying to Duggimon:
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By Tax Dragon
13th May 2021 17:13

As per the Stewart Fraser Ltd case (TC 00923)?

Careful, Duggi, you're starting to answer the OP's questions! (We don't do that in Aweb. You'll learn.)

https://www.bailii.org/uk/cases/UKFTT/TC/2011/TC00923.html

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Replying to Tax Dragon:
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By frankfx
13th May 2021 18:49

Tax Dragon wrote:

As per the Stewart Fraser Ltd case (TC 00923)?

Careful, Duggi, you're starting to answer the OP's questions! (We don't do that in Aweb. You'll learn.)

https://www.bailii.org/uk/cases/UKFTT/TC/2011/TC00923.html

Thank you for the case reference.

Para 23 and 31 are telling.

As with many of these cases it is illuminating to note how both sides marshal their arguments.

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Kitten
By Hazel Accounts
13th May 2021 17:40

TheNovice wrote:

1. DLA written off - deemed £75,000 dividend on the director's self-assessment. Does some form of declaration need to be made on the self-assessment or is it simply added it into the UK dividend box?

It's shown on additional info page of SATR (loans to close co.s written off) not just added to the dividend box

TheNovice wrote:

Nothing else needs to be reported? No further consequences to think about?

Yes there is - it needs to be payrolled - not taxable but NIC is due...................

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Replying to Hazel Accounts:
Psycho
By Wilson Philips
13th May 2021 18:11

Hazel Accounts wrote:
NIC is due...................

Not if it’s done properly
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Replying to Hazel Accounts:
Psycho
By Wilson Philips
13th May 2021 18:15

Duplicate

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