Writing off directors loans - possible

[jpsand]

Hello,
a good friend has a limited company of 8 years standing. He has taken around £100,000 in directors loans in the most recent tax year. The company has unfortunately stopped trading and he is contacting all his suppliers to settle their bills and wind the company up in an orderly fashion which he believes will be possible, so basically the limited company will have its affairs in order.

2 questions for the hot tax chaps out there...

1. Can he write off the loans as he is not able to pay them back (various legitimate reasons, he is subject to a court order currently) and complete a voluntary wind up of the limited co?
2. I assume he needs to pay the tax due on this loan at his prevailing rate of income tax (£40k approx) before writing it off, is this correct?


Any suggestions would be most welcome, he is a dear friend in need of some guidance and I hope someone will be able to point him in the right directions, again, thank you.

JP

[robbob]

Hello jp

I would probably leave this one to the company liquidator and or an insolvency practicioner to advise on.
If i was owed money by this company i would not be happy if the director was asking for 100k to be written off unless i knew the individual had no assets and was declared bankrupt -I.e as much proof is available as possible that this money could never be recovered.
Obviously there may be legitimate reasons why this individual has no cash now but it sounds like they have the ability to earn enough to pay something back judging by the fact that they managed to borrow 100k in the first place.
Thuis all begs the question of what happened to the 100k he borrowed.

[jpsand]

I think the way he was playing it was that he would make sure all his suppliers were settled before winding the limited co up, so there would not be anyone that was out of pocket. Not sure if this would make any difference to writing off the loan though? He is a gentleman and would not consider leaving long standing suppliers owed money.

[robbob]

Hello jp

Is the taxman owed any money?

There are potential benefit implications and S419 tax charges on the company for overdrawn directors loan balances.

I would recommend he seeks specific advise on the best way to proceed - whoever advised him that it was ok to borrow 100k from his company should hopefully be able to advise him the best way to reverse this situation in the correct manner.

There may be others who post on this forum who are able to assist in winding up the company in the most tax efficient manner.
If possible a return of capital rather than dividend or loan w/off may be more beneficial as far as tax is concerned.

[jpsand]

thanks Rob - I believe the tax man is all paid up.

[tom 7000]

there are three ways,

1) You write it off and he has to pay tax and Ni on it which is 31% or 41%
2) He pays it out as a dividend and pays 25% tax on it personally,
3) He closes co under ESC c16 and pays CGT which is 10k ish tax free and 90k at 10%

3 is you best option, but I believe to achieve this he has to pay the company back then pay it out again once clearance is given- anyway he would want to pay it back to get the s419 tax back.

He might not have the funds to do it, but it can be arranged. bank lends him cash he has it for 1 day, repays company, co has it for one day, then pays him out under ESC c16 and then he repays bank. The bank can even 'lock' the accounts to ensure they have some security while it goes round in a circle...there is a way and its worth doing to save £15k...

I have done a few of these, if you need more help
tom@ttca.co.uk

[okevin]

Sorry but can you summarise the latest balance sheet position exactly?