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is it a taxable event on an IVA

it concerns a director of a company entering an IVA and having 90% of the 100K loan write off

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Due to a pending legal action a director of a private company is entering an IVA as a precautionery measure. He owes the (his) company £100k, (leaving aside whether he can vote on his own DLA). If the debt is written down there is a BIK of £90k , what are the tax consequences of such a release and if there is any tax arising will it go into the creditors pot for a 10% payout. i presume that the tax liability only crystalises on the approval of IVA and HMRC cannot object before?

Nick

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Caroline
By accountantccole
19th Mar 2019 11:39

Be careful with the timings this close to 5/4. The client that I had in an IVA was given a new UTR for the tax year after the IVA, which reset the clock. Anything pre-IVA tax year was written off in the IVA then the new UTR started for the following year.

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Psycho
By Wilson Philips
19th Mar 2019 11:47

Is the director also a shareholder?

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Replying to Wilson Philips:
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By carnmores
19th Mar 2019 12:09

100%!

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Replying to carnmores:
Psycho
By Wilson Philips
19th Mar 2019 12:16

So why would there be a BIK, rather than a deemed dividend?

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Replying to Wilson Philips:
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By carnmores
19th Mar 2019 12:28

well it had been shown in the company accounts as a loan at the year end, but thanks for the food for though

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Lisa Thomas
By Insolvency Practitioner
20th Mar 2019 15:04

In respect of the individuals personal tax for the entire tax year - this will rank as an unsecured creditor in his IVA, assuming it is voted through (no he can't vote himself).

As regards the Company's position my understanding is that the Company will write the debt down. There will therefore be a capital loss but it not be tax deductible so can't set it against the profits.

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Replying to Insolvency Practitioner:
Psycho
By Wilson Philips
20th Mar 2019 15:09

Insolvency Practitioner wrote:
There will therefore be a capital loss but it not be tax deductible so can't set it against the profits.

It wouldn't be a capital loss, but the point is academic since it wouldn't be deductible in any event.
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