Write off of loans to participators
I recently got asked whether if a client made a claim for the relief that would prevent him from recovering money if it later became available.
They will look at the facts of the case. There is in the legislation as far as I am aware no requirement for the loan to be written off.
Class 1A NICs will be payable by the company on beneficial loan interest, which will also be required to complete form P11D b. The amount on which to calculate NICs is on the amount written off. Is it only transactions with the directors that need to be recorded? The details required are the amount of the loan granted during the year, an indication of the interest rate, its main condition and any amount repaid or written off.
In fact HMRC tried to argue unsuccesfully that a loan had to be in existence and not waived at the time a claim was made in Crosby Trustees v Broadhurst case. Special Commissioners disagreed with the Inspector's view but it is interesting that that was the Inspector's view.
- What are the consequences on the overdrawn DLA if the company goes into liquidation?
- There is in the legislation as far as I am aware no requirement for the loan to be written off.
- The amount written off is treated under Income Tax Trading and Other Income Act as a deemed dividend.
If you participxtors at the actual legislation in TCGA s it refers in I think subsection 6 to the fact that any subsequent recovery of the loan after the claim is made will be a chargeable gain at that time. That would suggest that the loan doesn't have to be written off otherwise what would be the point to that subsection.
Small print and Links At a glance HMRC instructs its staff to examine directors' private expenditure during the course of an enquiry into a close company's books and records. The rule has been replaced by the requirement to obtain prior shareholder approval. The company can write off a loan given to the director. This amount is payable even if the company is making a loss and there is no corporation tax due. Back to top The loan would become crown property as would the s tax that HMRC would not repay as QED the loan has not been repaid.
I therefore don't see why it is necessary to write off loanns loan to claim the capital loss as long as all the facts suggest that the loan is irrecoverable. You will no doubt have to enter into negotiation with HMRC over the recoverability issue but just in case they paarticipators around and consider it to be recoverable and no capital loss available wouldn't the client be better still having the ability to recover monies should they eventually become available or argue the case again a little later when there is more certainty that the loan is irrecoverable. You write off of loans to participators need to write off of loans to participators care that the loan wasn't made at a time when it would be considered to have been irrecoverable already lans the irrecoverable loan meets all the conditions of the legislation.
As you could get tripped up elsewhere for example was the money used for the purposes of the trade, has the right of recovery been assigned by the original lender etc. You may want to have a read of the legislation for the capital loss relief and maybe that case before making a decision as to how to deal with this.
Hope that helps a little.