Share this content
7

Writing off a director's loan account

Is there a taxable implication to writing off a director's loan account

Didn't find your answer?

A client has effected a share purchase of a business which has a heavily in hand (i.e. not overdrawn!) directors loan account. There is no requirement to settle this with the former owner/director of the business. If the loan is written off in the P&L, will the profit thereby created give rise to a CT liability? Is there an alternative way of dealing with this loan?

Replies (7)

Please login or register to join the discussion.

RLI
By lionofludesch
06th Apr 2020 14:01

Surely part of the purchase price is settling the director's loan.

Thanks (0)
By johngroganjga
06th Apr 2020 14:28

It beggars belief that this is coming to light after rather than before the share purchase was completed. What does your client say was agreed. If he does not know, what did the solicitor who advised him on the SPA say? What does the SPA itself say?

Thanks (1)
Psycho
By Wilson Philips
06th Apr 2020 14:50

The answer to the (first) question is "yes".

Thanks (0)
avatar
By smayles
07th Apr 2020 09:41

It was a most peculiar transaction, but there was no requirement to settle the directors loan account at any stage - it was by mutual agreement. Consequently we have inherited a significant creditor on our newly acquired balance sheet. I am reluctant to write it off if this will give rise to a CT liability. It does, after all, represent funds introduced at various stages - why would this then become taxable as revenue? But how else could it be done?

Thanks (0)
Replying to smayles:
Psycho
By Wilson Philips
07th Apr 2020 12:07

Since the purchaser may ultimately be better off to the tune of 73% of the loan that would otherwise have been repaid, tell him to stop being so greedy.

Thanks (0)
avatar
By Tax Dragon
07th Apr 2020 11:30

It's not your debt to write off and not your choice as to whether the receipt is taxable.

If the director has already agreed not to have the funds returned, the money thereby donated is income of the business and taxable when the director agreed to that.

Thanks (0)
RLI
By lionofludesch
07th Apr 2020 11:43

It could've been structured better, I have to say that.

Thanks (0)
Share this content

Related posts