A friend of a client raised a question
He has a business with about £500k in cash which he wish to extract by having an overdrawn directors loan
I don't know why
Explained the tax and ni consequences of of loans
I also said that on a winding up, I thought the liquidator would want the 0verdrawn loan repaid.
He said surely this would be net of s455 tax.
Anybody know? I wouldn't of thought it was,
If I was a liquidator I would want it all repaid
Additionally I would of thought hmrc would offset the 455 tax against other liabilities
Replies (3)
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Your post makes little sense.
If the director wishes to close the company with a £500k debtor, then there will be tax consequences of the "write off".
Can't he do a capital distribution and potentially qualify for ER?
Cue 2 pages of nonsense on the meaning of "write off".
Before we get there, though, what is an insolvent company doing with £500k in cash? Presumably there are liabilities that exceed that amount, in which case of course the liquidator is going to go after the whole amount.
"Net of S455 tax" makes no
"Net of S455 tax" makes no sense. If S455 tax has been paid on the loan (whether it will have been depends on the timing between the making of the loan and the appointment of a liquidator) it will be repayable to the company on the repayment or release of the loan.
The S455 tax is a matter between the company and HMRC.
The matter between the shareholder and his company is his loan.
If his loan is £500,000, the liquidator will need to call in sufficient of that to enable all creditors to be paid. That may be all £500,000 of it, or only part of it. We don't know.
Any part of the loan that the liquidator does not need to call in can, with the liquidator's agreement, be offset against an interim distribution due to the shareholder, which of course has tax consequences for the shareholder.