Director's loan account


F

Fred

I would be grateful for anyone to confirm and possibly give links to the
taxation aspects of director's loans to a company.

I had received remuneration under PAYE but had also put in a loan to this
company. Unfortunately this company became insolvent and so it's not
possible to recoup my loan. However I believed I should at least get tax
back on my loss if nothing else. Can I?

With hindsight - should I have extracted the loan before being paid "income"
under PAYE?
 
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T

Troy Steadman

I would be grateful for anyone to confirm and possibly give links to the
taxation aspects of director's loans to a company.

I had received remuneration under PAYE but had also put in a loan to this
company. Unfortunately this company became insolvent and so it's not
possible to recoup my loan. However I believed I should at least get tax
back on my loss if nothing else. Can I?
Sorry to hear about that Fred, this Q&A might get you started:

http://www.taxationweb.co.uk/forum/discuss.php?id=2065

"The capital loss as a result of loan account should be claimed for
future CGT use."




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F

Fred

Troy Steadman said:
Sorry to hear about that Fred, this Q&A might get you started:

http://www.taxationweb.co.uk/forum/discuss.php?id=2065

"The capital loss as a result of loan account should be claimed for
future CGT use."
Many thanks for your post.

I feel it's very unlikely I'll make any capital gains in the next few years.
So I doubt I'll be able to make any use of this.

I got the impression, albeit wrongly, that a director's account meant just
that. That income and loans were interchangeable.

It's obviously better to take loan repayment and delay income until after
the loan has all been paid back. Subject of course to using your personal
allowance etc.
 
T

Troy Steadman

Fred said:
Many thanks for your post.

I feel it's very unlikely I'll make any capital gains in the next few years.
So I doubt I'll be able to make any use of this.
Google on all the words you can think of surrounding the issues you are
facing. Insolvency is a very stressful time and the professionals in
Usenet will have spent many useful hours advising people such as
yourself, make the most of Google's huge database of information.





--
 
R

Ronald Raygun

Fred said:
I got the impression, albeit wrongly, that a director's account meant just
that. That income and loans were interchangeable.
They are interchangeable in the sense that you can decide, with each
payment you let your company make to you, whether it is a loan repayment
or a payment of salary. But, having made the decision, you can't
easily reverse it.
It's obviously better to take loan repayment and delay income until after
the loan has all been paid back. Subject of course to using your personal
allowance etc.
If it was so obvious, why didn't you do it? :)

If you have no other income, it's always good to take at least an
amount of salary equal to the personal allowance, because then you
get NI qualifying years for nothing.

After that, it's best to take loans back out, unless you expect the
business to make killing next year, and you would lose less tax by
taking the loan out next year than this year.

But another reason to take loan first and salary later is, that
if there is salary owing to you, you go to the head of the
queue of creditors. Mind you, that may not apply to directors
who have the power to say whether they are owed a salary...
 
P

Peter Saxton

I feel it's very unlikely I'll make any capital gains in the next few years.
So I doubt I'll be able to make any use of this.
Why are you taking a short term view?
I got the impression, albeit wrongly, that a director's account meant just
that. That income and loans were interchangeable.
I hope they aren't. I wouldn't be very happy if I found out that
income I had earned as a director had to be paid back!
It's obviously better to take loan repayment and delay income until after
the loan has all been paid back. Subject of course to using your personal
allowance etc.
There's various pros and cons, eg. pensions.
 
S

Simon Steer

Peter Saxton said:
Why are you taking a short term view?

I hope they aren't. I wouldn't be very happy if I found out that
income I had earned as a director had to be paid back!

There's various pros and cons, eg. pensions.
There is another issue here. Where there any other creditors that lost
money. As a director, you were unable to recoup your own investment without
giving yourself preference over the other creditors. If that was the case,
the Insolvency Practitioner would require the director to reinvest funds to
bring the loan account to the same position it was in 12 months prior to the
date of liquidation.
On the other hand, the director was entitled to take a salary and no IP
would object to a normal salary in proportion to the period prior to the
liquiadion or at least, in the period up to the time the director realised
that the financial position was untenable.
Any other thoughs?
 
P

Peter Saxton

There is another issue here. Where there any other creditors that lost
money. As a director, you were unable to recoup your own investment without
giving yourself preference over the other creditors. If that was the case,
the Insolvency Practitioner would require the director to reinvest funds to
bring the loan account to the same position it was in 12 months prior to the
date of liquidation.
On the other hand, the director was entitled to take a salary and no IP
would object to a normal salary in proportion to the period prior to the
liquiadion or at least, in the period up to the time the director realised
that the financial position was untenable.
Any other thoughs?
Before the position was untenable there would be no objection to
paying back the loan provided this was within the terms of the loan.
 
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F

Fred

Peter Saxton said:
Before the position was untenable there would be no objection to
paying back the loan provided this was within the terms of the loan.
It's a mute point exactly when the situation became untenable? Typically
repayment of a loan would have been called a preferential payment and would
not be regarded as essential to ensure the continuance of the company. Such
repayments of loan may have to be paid back whereas a reasonable salary,
even for a director, would be seen OK as a preferential payment.

BTW I took out a debenture in respect of one of the loans. However due to a
monumental cock-up on part of the solicitor I engaged, I put the money into
the company before lodging the debenture with Companies House. I later
found out this debenture became a worthless piece of paper. It's all a saga
I'd like to forget!
 

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