Write off loan to associated company
HMRC CFM Two companies are connected for an accounting period if one controls the other or both are under the control of the same person s and companies are connected for the whole of their respective accounting periods if the control test is met at any time during those periods. The directors owe this money back to the company the fact that company B can't pay them back is irrelevant. Where the Reduction Amount exceeds the base cost, such excess amount write off loan to associated company be applied to reduce any assessed capital loss of the borrower for the year of assessment asssociated which the reduction takes place. If the gain or loss is revenue in nature then Company A may obtain a deduction in relation to such loss. If a transfer of funds to a closely held business is intended to be treated as a loan, there are a number of factors that are indicative of bona fide debt of which both the purported lender and cpmpany borrower should be aware:
I would argue that its not a loan between two companies it is in fact a Loan by Company A to the directors of Company A. The directors owe this money back to the company the fact that company B can't pay them back is irrelevant.
- No prudent lender would have continued to advance money to any of the Companies under such circumstances.
- Conversely, a loss on redemption of the loan will arise for the lender Company A upon the waiver of the loan.
- In this case, the Court continued, no loans were documented.
The directors of company B have provided a loan to company B, if that loan is written off then its a directors current reduction. To lend money between companies you need a group structure to avoid these problems. Hi Alan Perhaps but a bit too aggressive for me.
Secondly, there is a BIK on the notional interest on the loan outstanding at a notional rate of This woudl be payable through PAYE system or via the directors personal return if not. Thirdly, if the loan is deemed written off, there is a personal tax liability in the hands of the directors as it is deemed a salary. This would be via PAYE system or directors personal return if cmopany.
Query 18, — Written Off Reply from Larry Laffer If X Ltd impairs the debt in its books or otherwise writes off or releases the debtthe resultant debit in its profit and loss account will reduce its profits available for article source. The loan relationship legislation was originally introduced by Finance Act and then amended by subsequent Finance Acts, before being consolidated as part of the tax law rewrite into Corporation Tax Act The use of the LLP structure has meant that, previously, a charge to s. The transfers simply did not give rise to a reasonable expectation or enforceable obligation of repayment. Generally, unless the taxpayer is a money-lender, an adjusted gain or loss should be capital in nature in which case section 24J should not apply. If they do not, then the companies are not connected and relief will be available for corporation tax purposes. The bad debt need only be taken into account in the reckoning of sufficient distributable profits if, at the time of payment of the dividend, it was more likely than not that the loan to Z Limited would prove irrecoverable.
Also note that as proprietary directors, the above would need to be reflected on their personal form 11 returns and the taxes paid even if the company does not pay them through the PAYE system. This effectively means they are personally liable for the tax. Whereas if you take the addback in the tax comp the most that is lost is a And if there is no profit in the company then there may not be a CT charge at all.
So the question is, could the revenue deem the loan written off if it is clear that there is no intention by the directors to repay it. I would think it is offf to take the fof in the accounts and additional CT at Also, it is already a breach of section 31 and a company law issue anyway because Company B is connected to the directors of Company A Regards.