loan relationship write down

Credit balance in P&L

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I have had to write down a creditor loan between related parties, this has lead to a large credit balance in the P&L, giving rise to a taxable profit.

The other side begin a debtor balance therefore gave rise to a debit balance in the P&L.

As, this is not a real profit could it be allowable as a loan relationship write down?.

Replies (25)

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By johngroganjga
13th Nov 2017 09:42

Wouldn't it have been better to explore the tax consequences of waiving the loan before the creditor company executed the waiver - it has executed it hasn't it?

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Replying to johngroganjga:
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By tenyearstogo
13th Nov 2017 10:15

The decision was made by the auditor in the debtor company without looking at the creditor company.
I now need to deal with the credit balance in the P&L

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Replying to tenyearstogo:
By johngroganjga
13th Nov 2017 10:35

It's none of the auditor's business to make such decisions. Are you quite sure they have? It's a decision only for the board of the creditor company. Have they taken a decision in principle to waive any of their company's debts, and if so have they subsequently acted to give full legal effect to that decision? If not, you have no waiver to reflect in any accounts or to worry about the tax treatment of.

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Replying to johngroganjga:
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By tenyearstogo
13th Nov 2017 10:58

As, both entities had negative balance sheets the view was taken that the loans would never be repaid.
The board agreed with the auditor position.

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By Ruddles
13th Nov 2017 12:18

Clarify what you mean by "related". And do the auditors not have sufficient tax expertise to advise on the tax implications?

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Replying to Ruddles:
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By tenyearstogo
13th Nov 2017 13:01

Related by common director.
Yes, they do but will charge me for the advice.

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Replying to tenyearstogo:
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By Bobbo
13th Nov 2017 13:25

So you thought you'd come and get the advice for free here?

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Replying to tenyearstogo:
By Ruddles
13th Nov 2017 13:33

Geez - you could have made a bit more effort:

"They're not available at the moment, and it's urgent"
"It's an audit-only assignment"

But kudos for admitting that you're nothing but a freeloader.

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Replying to Ruddles:
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By tenyearstogo
13th Nov 2017 13:50

you got nothing better to do?

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Replying to tenyearstogo:
By Ruddles
13th Nov 2017 14:04

It's lunchtime - so, no.

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By tenyearstogo
13th Nov 2017 13:35

Have found the answer on CTA2009/S299.
Thanks all.

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Replying to tenyearstogo:
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By Portia Nina Levin
13th Nov 2017 13:49

I think you need to take a longer wander into Chapters 5 and 6 to be honest.

That and getting the accounting treatment right; assuming that all that has happened is that the debt has been impaired in the debtor's books.

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By Justin Bryant
13th Nov 2017 15:10

"Q. I act for two limited companies that are controlled by the same person. There is a debt owed by one to the other to the sum of £50,000. My client would like to write this off so that the debt is no longer owed, what would the Tax implications of this be?
A. The situation indicates that a loan relationship exists between the two companies. However, the companies are controlled by a common party and are therefore connected.
Under CTA 2009, S/353, if a loan relationship exists between connected parties and is to be written off, there is a restriction on the amount that the company can obtain. As stated in S/354(1)…’no impairment loss or release debit in respect if a company’s creditor relationship is to be brought into account’.
The write-off therefore is tax neutral and there will be no charge in the debtors company and no relief in the creditors company."

The above is from a reputable website, but is only correct in stating that there will be no charge in the debtor company if the debt is formally released by a debt waiver agreement; otherwise the debt write off can be fully taxable and this is a potential trap for the unwary.

See link below:

http://www.scruttonbland.co.uk/blog-post/wait-don-t-write-inter-company-...

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Replying to Justin Bryant:
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By Portia Nina Levin
13th Nov 2017 15:22

Forgive my ignorance, but what other ways are there of writing a debt off Justin? And what about what accountants these days call impairment losses? I vaguely recall them getting a mention.

I only ask because that is what I believe the OP is all about. And we still don't know whether or not the two companies have a connected companies relationship. The OP was a bit vague on the point, so everybody gave up.

Have you ever considered a career in lion-taming, incidentally? You strike me as somebody who'd make a good lion-tamer.

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Replying to Portia Nina Levin:
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By Justin Bryant
13th Nov 2017 15:29

It's not described as a trap without reason and I suggest it's yet another instance of you not knowing what you are talking about.

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Replying to Justin Bryant:
By Ruddles
13th Nov 2017 15:28

If the debt is not formally released by a debt waiver agreement, there should be no credit to tax. As such, "the debt write off can be fully taxable" makes no sense.

I agree, though, that there are idiots out there that assume that just because one company has recognised an impairment debit it automatically follows that the other party must recognise a corresponding credit.

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Replying to Ruddles:
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By Justin Bryant
13th Nov 2017 15:32

You are another person who clearly does not know what they are talking about. Why on earth would you take that risk!

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Replying to Justin Bryant:
By Ruddles
13th Nov 2017 15:38

Enlighten the ignorant, then - give us an example of the circumstances in which a loan write-off (between connected companies) would be taxable.

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Replying to Justin Bryant:
By Ruddles
13th Nov 2017 15:48

And?

That article just reinforces my point - if an informal write-off (whatever that is) is credited to the P&L it may be taxable. But nobody should be crediting the P&L until the debt has been formally waived. Those that do are idiots. I'm not sure how that leads you to the conclusion that I don't know what I'm talking about, but coming from you I take it as a compliment.

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Replying to Ruddles:
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By Justin Bryant
13th Nov 2017 15:55

You clearly are someone who does not mind taking ridiculous and unnecessary risks for their clients (as you showed in your last answer to my LR question last week).

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Replying to Justin Bryant:
By johngroganjga
13th Nov 2017 16:07

You have lost me. What “ridiculous and unnecessary risks” are you referring to?

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Replying to Justin Bryant:
By Ruddles
13th Nov 2017 16:37

What on earth are you on about? I'm simply saying that anyone foolish enough to recognise a credit without a formal waiver is an idiot. How does that translate into my taking "ridiculous and unneccessary risks" for my clients?

As for the LR question , you suggested a potential problem with reversal of accrued 'late' interest. No-one, including HMRC, agrees with you. So I'm not sure how applying a correct interpretation of the legislation, and treatment that is accepted by everyone, including HMRC, except by you, constitutes the taking of ridiculous and unnecessary risks. What would you have me tell my clients?

"I, and almost everyone else, including HMRC, understand that the reversal is non-taxable. However, there is a misguided numpty on an internet forum that believes that it should be taxable so, in the interests of avoiding ridiculous and unnecessary risks, I've treated it as taxable."

Stick to what you're good at - though I have no idea what that is. It certainly ain't tax.

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Replying to Ruddles:
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By Portia Nina Levin
13th Nov 2017 16:37

No, no, no. You can't call Justin a numpty. He's an apprentice lion-tamer.

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Replying to Justin Bryant:
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By Portia Nina Levin
13th Nov 2017 16:26

I don't accept that there is an informal writing off process. The debtor either has the ability to enforce the debt, or it has put itself in a position by way of a deed of waiver, whereby it cannot.

For the creditor to remove a debt from its accounts that the creditor can still legally enforce (whether or not it is impaired in their accounts) is just plain wrong, as far as I'm concerned.

Ken (where the hell did he go?) Moody does start with the words, "I have seen the view expressed". Those words usually mean that the writer (a) hasn't encountered the matter in practice, and (b) isn't entirely sure the view that they've seen expressed is correct.

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