Tax issue, Director resigning and owes company money?

J

Jackg

Guest
Hi all, apologies in advance if this is a tad long winded.

My wife has agreed to resign from the company of she is a 50% shareholder for the sum of €2,000. (a very long story)

She owes the company €9,000, which was company funds used as down payment to help buy a property privately several years ago.

This property is where the company trades from with a basic lease in place and rental declared.

Her business partner did likewise and owes the company the same amount. These are detailed the the accounts.

Her business partner suggests that the company writes a cheque to my wife for the sum she owes and she in turn would write a personal cheque to the company for the same amount.

so 3 questions arise that you guys may be able to help with:

1.How are these transactions treated from a personal tax perspective?

2.Is there a historical personal tax liability?

3.How can my wife minimise tax on the €2,000?

I appreciate any help as she just 'wants this over with'
 
Hi

Firstly you need the establish who the €2,000 is coming from. Is it the other shareholder for the purchase of shares and therefore may be subject to CGT. Is it from the company and compensation for loss of office and may be exempt.

The loan from the company should have been subject to BIK at 12.5% per annum but that liability lies with company.

How is the co ownership of the property being dealt with.
 
Director resigning

You need more information on this and should Talk to company accountants.
Ask them whether your wife may be entitled to a tax free termination payment --which could more than cover the 9K owed.
Or
If the shares had an original cost then perhaps they could be bought back and the resulting gain or loss established.
 
Hi to both of you and thanks again.

They are both equal owners of property and lease agreed for next 2 years and 9 months. rental declared on our joint tax return and all above board.

Since our son was born 2 years ago today:) my wife has only worked intermittently and she last received a pay cheque 18 months ago.

Truth be told both parties were happy with this arrangement as they were not getting on and the business cannot sustain both personalities and salaries.

We need to effect an amicable solution as they are related through marriage. In essence, they have agreed a sum for goodwill of €2,000 and while this is very low, I am happy to see closure.

The mechanics of payment have to to be agreed; i believe this was to be a personal cheque from her business partner.

My concern is about having a liability/loan for €9,000 hanging over her at a later stage and this is my bigger concern.

This was a newco set up with equal shares etc.

cheers

Jackg
 
Holy cow there are so many issues / potential issues here I literally don't know where to begin -
- Income tax due on her director's loan of 9k from the company
- The market value of her shares is all that is relevant for CGT purposes, regardless of how much she actually receives for them. "Goodwill" in this case is attached to the trade carried on by the business.
- Potential company law issues over the directors' loan balances

Bottom line - get to a decent tax advisor BEFORE things get messy.
 
If the loan from the company was given some years ago, surely the company had to declare the loan, pay income tax on the grossed up amount, and the director in turn declared the income in that year and paid any further income tax liability. If that was done she has no further liability now.
 
She owes the company €9,000, which was company funds used as down payment to help buy a property privately several years ago.
Click to expand...

Is this a limited company with shares or are you using the word "company" when you mean partnership?

The accountant should not have let a loan to a director continue. If it was on the balance sheet, I am surprised that Revenue did not query it.

Start by asking the company's accountant/auditor.

If they can't explain what happened and how they accounted for it, get the opinion of another accountant.

Your wife is facing very serious problems here.
 
Still reading between the lines a bit and some of the above comments are a bit scary but true, unless you sort this out properly, but don't panic!
Firstly, if the 2K is for your shares, then it's subject to CGT at 30% but you have an annual exemption of €1270, so max tax here is 30% of €730, and you may have other losses to offset this.( As previous poster says, this should be on the market value of the shares, so I am assuming that if your wife accepts 2K , then that is the market value.)
The 9K loan is a bit more complicated. However, if's its less than 10% of the companys' net assets then there are no company law issues, just potential income tax issues as in previous posts. However, it may be that your accountant cleared this loan each year (through your payments re rent), and effectively gave you a new loan every year for 9K. If so, then you don't really have any historical tax issues on it-- just a current one and it sounds like the other partner is suggesting renewing the loan again, albeit in a back to front way!.
If your wife owes the company 9K then she must pay it back some day, else if this is never going to happen , then I reckon she is entitled to a tax free termination payment , which the company could award her and which would then allow her to repay the loan.
 
Is the idea behind this that the €9k being paid to the director is some sort of termination payment which the director is then to use to repay the loan? Or is it a share by back, in which case the value of the shares is actually €11k?

Both directors owe the company 9k each, a total of 18k. If those loans are less than 10% of the net assets, then the assets of the company alone must be worth at least €180k, not considering any goodwill. So either the valuation put on the company of €4k is ludicrously low, or the loans are in contravention of company law (even a valuation of €22k doesn't come close). But that's assuming the €2k is in exchange for the 50% shareholding. OP is unclear on whether or not the shareholding will be retained.

Jack, from what you've posted it doesn't appear that you fully understand exactly what the nature of these transaction are. Like the others, I'd suggest getting an accountant to help you with this. Just make sure that the accountant is independent.
 
Thanks for all your replies, much appreciated.

I will update when resolved.
 
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