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Write off directors loan.

Accounting entries and implications of writing off directors loan (credit balance).

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I have a company with a sole director who over many years has accumulated a credit balance on his loan account.

The director does not wish the loan to be repaid to him and has asked me to remove it from this years accounts.

I cannot think of any tax implications by doing this (although I am happy to be corrected).

Therefore is it possible to just write the loan off against reserves. Or what would be the correct accounting entries.

Also, should I make any disclosure to HMRC and or a note in the accounts.

Any advice appreciated.

Note: Although I have used this site for reference for many years, I have never posted a question before, so if this is the wrong place, format etc. Then please advise.

 

Replies (9)

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By Tim Vane
17th Jan 2020 10:29

You have of course missed out the most crucial piece of information. Is the director a participator? If so, it's a whole different ball game.

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Replying to Tim Vane:
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By Tax Dragon
17th Jan 2020 10:40

Read again. It's a credit.

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Replying to Tax Dragon:
By Tim Vane
22nd Jan 2020 09:34

Tax Dragon wrote:

Read again. It's a credit.

How does that answer the question? Is he a participator?

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Replying to Tim Vane:
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By Tax Dragon
22nd Jan 2020 09:43

100%.

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By johngroganjga
17th Jan 2020 10:51

Before taking advice on the accounting entries and the tax consequences thereof, have you asked the individual in question why he wants to do what you say he wants to do. It is almost certainly not in his interests you see, and if you just crash on regardless you may run into difficulties in future if he realises he has shot himself in the foot and blames you for not advising him.

Is this a company that the individual in question takes income from? If so, explain to him how much tax he can save by taking tax free loan repayments instead.

Is this a company in financial difficulties that the individual in question wants to improve the balance sheet of? If so, advise him to cancel the loan by issuing new shares.

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Replying to johngroganjga:
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By Ericck
17th Jan 2020 16:38

Yes I have explained it is not in his interest.
The issue of of new shares is a fine idea. Thank you for that.
Might be a bit late for the last accounts though.

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Replying to Ericck:
Psycho
By Wilson Philips
17th Jan 2020 16:51

It’s too late for the last accounts in any event.

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Replying to Ericck:
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By Tax Dragon
17th Jan 2020 17:14

I agree with Wilson, and on the other points:

Ericck wrote:

Yes I have explained it is not in his interest.
The issue of of new shares is a fine idea. Thank you for that.

I'm guessing he is/you are more interested in raising finance than saving tax. Fair enough. Might be worth a chat with a CF bod, rather than fudging stuff. You never know, he/you might get the best of both worlds.

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By AnnAccountant
17th Jan 2020 11:05

"I cannot think..."

Looks that way.

Have you considered retraining as a dog walker?

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