Voluntary Strike Off and Directors Loan account

I am trying to help a friend strike off his company.

Whilst we know what to do re same from the CRO and Revenue websites, the issue we have is with the directors loan account.

The company hasn't traded in a while so there is no income/expenses/assets or taxation liabilities but the company owes €10k to the director. He is more than willing to let this money go as he wants to close the company.

So can anyone please recommend the best accounting treatment to get the €10k off the balance sheet?

Any help is much appreciated...

Hi

How did the loan arise originally. Is it a trade debt or is it a capital debt?

capnhand

Sorry for late reply....it is a trade debt

If it was a trade debt then presumably you took a deduction for corporation tax purposes at the time it was incurred. So if you write off the debt now the company will have taxable income and therefore a corporation tax liability of 10k x 12.5% = €1250

Are there losses available?

Loans write off?

Hello,

I am also looking to strike off a company that has ceased trading, where the only liabilities are loans from a director and from a former director. Both are happy to write off the loans, but if I write them off to the P&L account, does that give rise to a Corporation tax charge? I'm not sure what is meant by trade debt or capital debt - these loans were investments made by the directors which they expected would be repaid, but the profits to do so never materilaised.

Any help/advice/pointers would be much appreciated.

Thanks

BD

Hi

If the directors lent the money to the company then this would be a capital debt as the company would not have taken a deduction against corporation tax profits at the time the loan was given ie the original transaction did not affect the profit and loss account. If this loan is then written off there is no question of income being earned by the company.

If the director originally sold goods or services to the company then it would be trade debt as the company would have taken a deduction against corporation tax for the cost of these goods and services at the time as the transaction woudl have affected the profit and loss. If this debt is then written off then the company has earned income and therefore a corporation tax charge will arise.

If you cannot understand this then you need to speak to a professional advisor or accountant.

Regards

capnhand

Thanks for the prompt reply, you have confirmed what I thought and the loans are certainly capital debts. It was actually a CPA who first mentioned to me that there might be a Corporation tax liability which is why I was searching for guidance on this.

Just one last question: to tidy up the Nominal Ledger (I have done the company's bookkeeping), what is the Credit entry if I Debit the loan accounts to write them off?

Hi

You would have to credit the profit and loss. But if it is a capital debt then you would add the amount back in the tax computation.

capnhand

Great - thanks again for your help.

BD