Helen W
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s.419 tax

s.419 tax

Client has large O/D DLA at the year end, 30.4.2009 with no hope of repaying this within the nine months post year end, and therefore a s419 tax charge has been reflected on the CT600 form.

How would the s419 tax charge entries be reflected in the company accounts @ the year end date, bearing in mind they were prepared well after the nine months, so being well aware the DLA was still outstanding?

Realising this has been covered many times, but there one or two different streams of thought in the office.

Many thanks for any guidance in advance.


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By Monsoon
15th Jul 2010 17:49

Balance sheet

Last time I read a discussion about this on AWeb, the general consensus was that it was Cr tax liability and Dr debtor, assuming the loan was going to be repaid. Reasoning behind this being that it's not a cost, the tax is a temporary payment and therefore should be shown as a debtor. I agree with this reasoning but there are others who think it should be shown in the P&L.

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15th Jul 2010 18:02

P&L Account

The argument for letting the s.419 tax charge hit the P&L is that it does not become refundable until the occurrence of a future event - the repayment or writing-off of the loan.  You cannot recognise an asset that does not exist at the accounting date.

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By perry23
15th Jul 2010 18:30

S419 / S455

Bit confused as to the accounting date being 2009, if 2010 then perhaps we should start refering to S455 CTA10 rather than S419

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By Helen W
15th Jul 2010 18:35

Yes can see both sides

Have always treated as DR as recoverable at the year end date, in agreement with Monsoon, but also knowledge of the client leads me in the direction of Euan to w/o to P & L., as it will no doubt be a very long time before the loan will be repaid.

Is there a definitive answer, or is it dependant on client knowledge? 

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15th Jul 2010 20:12

What If the accounts are prepared and submitted well before the tax is due and the intention is to pay off the overdrawn loan? I always ignore the s419 tax until it is paid them treat as debtor, short or long term depending on the clients situation.

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16th Jul 2010 11:36


The argument for not letting the s.419 tax charge hit the P&L and treating it as a debtor is that - it is recoverable at the balance sheet date, it only ceases to be recoverable if and when the loan is written off. 

In my view if the loan has not been written off at the accounting date then the amount is recoverable and should be recognised as an asset .


I suppose the argument for expensing it assumes that the loan will not be repaid, and vice versa

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16th Jul 2010 12:10

No, amarshah

The argument for expensing the s.419 charge is that the event that would lead to it being recoverable has not yet occurred at the accounting date.

Read s.419(1) or whatever it now is:

- "... there shall be due from the company, as if it were an amount of corporation tax chargeable on the company for the accounting period [my emphasis] in which the loan or advance is made, an amount equal to 25% of the amount of the loan or advance".

Read s.419(4):

"Where a close company has made a loan or advance which gave rise to a charge to tax on the company under (1) above and the loan or advance or any part of it is repaid to the company ... relief shall be given from that tax or a proportionate part of it.  Relief under this subsection shall be given on a claim ..."

If there has been no repayment by the accounting date, there can be no claim and hence, no relief from the tax charge.  I would agree with treating the s.419 tax as recoverable from the outset if the law said that "the company will deposit with the Revenue an amount of 25% of the loan while it is outstanding", but it does not.  It is clearly written in two separate parts - a tax charge and a tax refund triggered by two different events.



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16th Jul 2010 12:13

Debtor and then look at impaiment

So first Dr Debtors Cr Creditors

Second - Do we really expect to collect that debtor in the future.

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By mely
16th Jul 2010 12:30

Statement of principles...

I think you just need to go back to basics:

Asset = Rights or other access to future economic benefits controlled by the entity as a result of a past transaction or event

So long as the transaction meets this defintion and can be measured reliably it may re recongnised as an asset. The legal form of the transaction is irrelevant.

The company has a right to recover the S419 whether the loan is repaid or written off.











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16th Jul 2010 14:01

Quite so

The company has no control over if and when the director will repay the loan, so a s.419 refund cannot be recognised as an asset.

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16th Jul 2010 14:13

I Disagree Euan

I think it is a case of substance over form,

This is how I understand it:

The overdrawn DLA is classed as a Loan One of two things can happen: The Loan can be paid back or Written offIn both of the above circumstances the Tax payable under S419 will be repaid, hence a repayment of S419 Tax is virtually certainIf repayment of the S419 Tax is virtually certain then it must be an asset!The only uncertain thing is when it will be repaid, hence you may want to class it as a debtor recoverable after 1 year.

The other point is;  If it were treated as a tax charge you would also need to recognise a deferred tax asset giving  you the same net effect.

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16th Jul 2010 14:38


"The company has no control over if and when the director will repay the loan, so a s.419 refund cannot be recognised as an asset."

Surely, in the company can require the loan to be repaid at any time. If it did end up in the hands of an administrator/liquidator, then they would look to enforce the company's right to recover the debt immediately.

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By joneser
23rd Jul 2010 15:43

Distributable profits

If a debtor is brought in to equal the creditor there is no impact on the P&L account, and therefore no reduction in realised/distributable profits. If the company then goes on to declare maximum possible dividends (quite likely given that the directors loan account is already overdrawn) and deplete the P&L reserve, would we be happy paying out these dividends on the strength of a refund from HMRC at an indeterminate time in the future?

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