My client operates as a limited company with husband and wife taking a small monthly salary as directors. Recently the directors have chosen not to transfer monthly salary to personal accounts but include it within DLA.
Trading has slowed in recent years and at the year-end date of the most recent accounts the company was technically insolvent, albeit by only a matter of pounds and the largest creditor being the directors.
Husband and wife are now considering retirement and a credit balance exists re the DLA i.e. the company owes the directors.
They have instructed that the DLA balance be written off as the company has insufficient funds/assets to clear the debt.
Please could anyone advise on the implications of this action? Will the accounting entries be Debit - DLA, Credit - Wages/Other Income, thereby creating a corporation tax liability?