A liquidator will be appointed and a formal liquidation undertaken.
Hi again.If the company will be going through a formal liquidation process, the liquidator will be duty bound to try to recover any monies owing to the company from whoever the debtors are and that includes directors. If the liquidator formally writes off the loan, there may be income tax implications for the director concerned (see below).
Normally, the Section 455 tax will not be repaid unless the loan is repaid. However, if the company is a close company and the loan is written off and there is a personal tax charge on the director, it may be possible to reclaim the Section 455 tax from HMRC.
If the loan is not repaid and is effectively forgiven or written off there may be personal tax implications for the director who is indebted to the company. It depends how any write off is arranged and whether the company is a close company or not. The amount written can be treated as a distribution net of basic rate tax so if the director is liable to tax at higher rates, there will be further tax to pay. National Insurance Contributions may also be payable.
You should discuss the matter with the liquidator who will look at your situation in detail and make proposals as to the best way to manage the overdrawn loan account. In my experience, a good liquidator can find ways to arrange matters to minimise adverse tax situations.
Take a look at the notes here which give some more detail on the tax implications around the write off of an overdrawn director's loan account.
I hope this helps but let me know if you have any further questions.
Thanks for you answer.
We are not proposing to write off the loan balance as this will lead to additional tax due. I am aware of the treatment of a loan written off.
The main point of my question is whether the liquidator will be able to recover the s.455 paid as it is a company asset, or if HMRC are likely to refuse to repay this unless the see evidence that the loan has been repaid.
It is not intended that the loan will be either repaid or written off.
My other option is to send a non-statutory business clearance request to HMRC.