Directors Loan

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Woodpark00

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I as director and part owner of a company lent it money 3 years ago and this sits in the balance sheet as a libility.

Given the state of play these days I want to cancel this loan without seeking repayment ie write it off in the company books.

Is there any tax implications in doing this?
 
I'd ask a different question: in what way would such an act benefit you or the company?
 
Well by writing off the directors loan I will be increasing the net assets position for the company which will help when the company will seek finance in the coming months.
 
Then it becomes a question of how the transaction is recorded in the books of the company: you can't properly conceal it. I'd look at the possibility of converting the loan into shares (if the other shareholders agree) or a long-term debenture. That would improve the B/S from the point of view of a potential lender.
 
Could you repay loan out of current cashflow. If not i would leave it on the balance sheet and when you are sending accounts to any one put a letter with it highlighting the fact that you are due money and are not going to look for repayment of it in the short term.

As the liability is to yourself it should not effect the company ability to get money.
 
Thanks for your replies. Certainly those are options I can look into. But in general why cant I just write off the loan. It was created to buyout another shareholder and went through revenue reserves and not the company p&l account. Can i just re-instate reserves and write off the loan once and for all or is this too simplistic?
 
Hi

From what you have said it would not be treated as taxable income as it is a "capital" loan ie it was not generated as part of a trading transaction between yourself and the company.

If you write it off it should go through the p/l as income but would be an adjustment in the corporation tax computation due to the above. The write off cannot go straight to reserves but must go through p/l. This will effectively increase the revenue (distributable)reserves of the company.

When you bought back the shares originally there was probably a transfer out of revenue reserves to an undistributable reserve called capital redemption reserve for the value of the shares bought back. Thus the increase in the revenue reserves counteracts this original decrease which occured when the shares were redeemed.

Hopefully this explains it (I think) :)

DB
 
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