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Query regarding write off of directors loan

Non-resident considerations

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Hello,

I'm having an office debate with a colleague.

A director of a UK Limited Co has been a non-resident for 10 years.

My understanding of the legislation is that if he receives dividend income he can choose for this to be:

a) Taxed in the usual way.

b) Treated as diregarded income and he loses his perosnal allowance.

My colleague agrees with me on this point. I then said that if an overdrawn loan is released/written off then this would be treated as 'dividend income' and that it stands to reason that this could be treated as direagrded income also. My colleague does not think that this is true and feels that HMRC wouldn't allow this loophole for non-resident individuals to remian in place.

Any input (with reference to guidance/legislation) to end our debate would be welcome.

Thanks in anticiaption

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By Anonymous.
10th Oct 2018 17:06

We're_all_mad_here wrote:

I then said that if an overdrawn loan is released/written off then this would be treated as 'dividend income' and that it stands to reason that this could be treated as direagrded income also.

I don't know about the relief to which you refer but the write off of a director's loan account is the write off of a director's loan account and a dividend is a dividend. They are different in law generally (as far as I am aware) and also different for tax purposes.

If you decide which it is, the answer to your question should follow.

Are we assuming that the director is also a shareholder in the company, by the way?

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Replying to Anonymous.:
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By We're_all_mad_here
11th Oct 2018 09:27

Yes the director is also a shareholder. Apologies for omitting this point.

My understanding is that in this scenario the write off is treated as a dividend distribution (with the possibility of NI being charged on the amount depending on whether HMRC feel that the loan arose in the course of employment).

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By chicken farmer
11th Oct 2018 11:48

The write off has not been taxed as a dividend since FA 2016.
S. 415 ITTOIA simply says 'Income tax is charged ...' and s. 421 which used to grant a tax credit has not applied from 2016-17 onwards.

Similarly the write off is not disregarded income (ss. 811 and 825 ITA) as it is not chargeable under Chapters 3 or 5 of ITTOIA, but under Chapter 6.

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