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Home office used to clear directors loan account?

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Hi, 

I would like you opinion on the following.

We have a client that has an overdrawn Director Loan Account,  and my boss would like to bring in a his home office, valued at a proportuion of the total property value, as a fixed asset to clear the balance sheet.

To me this just seems like putting of the invetable and will likely cause problems in the future.

What do you all think?

Replies (32)

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By Paul Crowley
13th Jan 2021 09:38

Daftest idea I ever heard of

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Hitch photo
By Kevin Kavanagh
13th Jan 2021 09:45

Not sure if it's putting off the inevitable but it will certainly cause problems in the future. Why would anyone consider doing this without decent professional advice?

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Psycho
By Wilson Philips
13th Jan 2021 09:54

Explain what you mean by 'home office'

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By sjspeed576
13th Jan 2021 10:11

.

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blue sheep
By NH
13th Jan 2021 10:05

when you say "our client" and "my boss" I assume you are talking about an accountancy practice offering paid for advice - if that is the case I literally have no words

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By Justin Bryant
13th Jan 2021 10:13

A simple way to clear it is to sell an (CGT free) asset (e.g. a car) to the company by way of set-off, so it's not that daft (PPR will be restricted, but if he's expecting house prices to fall, so what?). Also, if it's <£40k there's no SDLT.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
13th Jan 2021 10:19

One needs to consider both the nature and use of said asset. One might be getting rid of one tax problem only to find new ones.

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Replying to Wilson Philips:
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By Justin Bryant
13th Jan 2021 10:54

No sh*t. I'm just saying it's daft to say it's daft.

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Replying to Justin Bryant:
Psycho
By Wilson Philips
13th Jan 2021 11:00

Agreed. Until we know the exact details we don't know whether any proposal, such as transferring a car, is daft or has merits.

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Replying to Wilson Philips:
blue sheep
By NH
13th Jan 2021 11:22

Hmm, well ok let's qualify it then, 95 times out of 100 this is going to be a daft idea

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Replying to NH:
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By Justin Bryant
13th Jan 2021 11:26

Yes; again, it's daft to just say it's a daft idea - per someone's above comment.

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By Tax Dragon
13th Jan 2021 10:25

I don't have an opinion. Opinions tend to be prejudiced.

I'm happy to discuss the tax consequences. But you have to go first, as you have more of the relevant information.

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Hallerud at Easter
By DJKL
13th Jan 2021 10:31

Wonder if the property has a mortgage on it or is unencumbered?

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Hitch photo
By Kevin Kavanagh
13th Jan 2021 11:27

Oh look - no 'thanks', no come back, no further details.....Anonymous strikes again.

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Replying to Kevkava:
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By thomas34
13th Jan 2021 12:27

So long as contributors continue to respond to "anonymous" posts the said anonymous posters will keep asking - but I agree most of them don't bother with the "thank you".

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Replying to Kevkava:
Jason Croke
By Jason Croke
13th Jan 2021 14:21

They could just be busy and will return to this thread later, even I'm not brilliant at checking back on threads that I contribute to.

But yes, often those who are seeking free tax advice for their "client" ahem, themselves, are a bit shy when it comes to thank yous.

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Replying to Jason Croke:
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By Youareatit
13th Jan 2021 17:04

Ahh Jason, you are being too nice, but havent been around on here long enough yet I think. Most = no thanks, no acknowledgement or worse still come on and do a bit of stampy feet aggressive whinging.

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Replying to Kevkava:
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By Youareatit
13th Jan 2021 17:05

Do you think it might be the one who dropped a '.'?

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A Putey FACA
By Arthur Putey
13th Jan 2021 15:03

It can be done, but only by the Home Secretary

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By sjspeed576
14th Jan 2021 09:20

Many thanks for all the responses!
I haven't had chance to come back on since yesterday morning.
I was trying to keep myself anonymous so that my boss would be more likely to listen to the advice.
I have tried to discuss it with him further but he still does not see the potential problems arising in the future and basically told me to just get on with my work.

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Replying to sjspeed576:
blue sheep
By NH
14th Jan 2021 09:47

sounds like a great boss (not), if I had a boss that had the attitude that the underlings do what they are told with no explanation or willingness to engage, to explain, to teach, develop and to learn I would tell them where to stick the poxy job, but then again I have been in a very fortunate position for a number of years where I do not have to deal with suchlike things

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Replying to NH:
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By Paul Crowley
14th Jan 2021 11:53

This stuff is top end work
He should be sorting it not you

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Replying to sjspeed576:
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By Tax Dragon
14th Jan 2021 10:16

As the idea involves a transfer of real estate, the client will need to get solicitors involved to effect the transfer. Maybe they'll say "ma'am/sir, are you sure you want to do this? Have you thought about this and that?"

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
14th Jan 2021 11:04

Tax analysis from a solicitor, well that's clever. (How advertising impact's one subconscious, thanks Knorr)

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Replying to DJKL:
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By Tax Dragon
14th Jan 2021 11:37

The implications seem to me to be not just tax. I reckon if I wandered into my solicitor with the plan to sell one room of my home to, well, to anybody, frankly, the solicitor might ask whether I had thought it through.

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Replying to Tax Dragon:
Flag of the Soviet Union
By thevaliant
14th Jan 2021 15:06

Not playing devils advocate here, just thinking in the mind of a crook.

The DR balance on debtors is causing a S455 problem.
Therefore, the director/owner just thinks to transfer it to fixed assets - part of the company 'owns' the house; but of course, no real transfer takes place. The DR is effectively now within fixed assets.

It's then written off over a number of years via depreciation, whilst at the same time AIAs are claimed on this 'addition' AND S455 tax is recovered. Everyone's a winner.... well... the shareholder/director is a winner. So the same thing in his mind.

It is, of course, completely illegal, but as my solicitor friend says, "Its only a problem if you get caught."

Incidently, I have seen the exact situation play out with an audit client of ours. And no, the client was never caught out. DLA cleared, £50k AIA's claimed and tax saving of £10k! Jobs a good'un.

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Replying to thevaliant:
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By Tax Dragon
14th Jan 2021 16:07

Is there a time limit on submitting SARs?

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By SteveHa
14th Jan 2021 10:55

Notwithstanding the tax position, which has already been adequately replied to, have you also considered exposure to business rates?

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Replying to SteveHa:
Hallerud at Easter
By DJKL
14th Jan 2021 11:13

Certainly in Scotland that might well result in a saving , 100% relief re small business rates and lower council tax. I do somehow think to latch on to it you would need to get change of use re the part of the property involved via the planning process, I know from experience that to get the assessors to split a commercial property into different units one needs a real split/separation (walls which are say fire compliant, minimum half hour doors etc) and it would also likely need its own toilet and kitchen facilities (or at least access to shared).

It seems with the OP that at best, once part of a residence conveyed to the company (and rights of access/egress attended to within the legal process, because absent these the value transferred is somewhat limited) the company owns residential property with all the tax implications that flow from same.

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Psycho
By Wilson Philips
14th Jan 2021 13:21

Quote:
my boss would like to bring in a his home office, valued at a proportuion of the total property value, as a fixed asset to clear the balance sheet.

It is not in your boss's power to do that. The client - having been advised of all consequences - needs to undertake the appropriate steps to effect the legal transfer of beneficial ownership of the property from himself to the company. What your boss can then do is draw up accounts that reflect the transaction.

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By Paul Crowley
14th Jan 2021 14:24

Is the client a person with a good memory?
If client cannot afford to repay his loan, then client definitely needs to remember that the house will suffer the equivalent of CGT in the company. ( No allowances)

Also that it bit of house needs to be bought back if company ceases trade

And if you overprice on the way in, overprice on the way out

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By Manchester_man
18th Jan 2021 18:02

As has been said above, it is potentially a very unwise move.

It sounds like the OP’s boss is looking to do a ‘back of a fag packet’ exercise to remove a DLA balance, without any ownership actually being legally transferred.

Even if this were to happen, what happens the next time the DLA becomes overdrawn? Sell the bathroom to the company? Or the pantry?

If the property is mortgaged, the mortgage company would need to give their permission.

Corporation tax consequences when the house is sold.

Surely better to do a dividend dated today’s date and pay the personal tax when due, assuming there are sufficient reserves.

If there are insufficient profits, then how have the drawings (against DLA) been funded?

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