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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I've a new Ltd Co client and on his Balance Sheet is a debit

Customer Question

I've a new Ltd Co client and on his Balance Sheet is a debit on the Directors' Loan Account of £15,000, it's about 10 years old.
The director concerned left the company and there is no chance of the Loan Account being repaid by him
I thought about issuing a special dividend but as I don't have his address couldn't be sure he would include it on his tax return. Equally I can't get his agreement to let the existing director take over the loan
How can I get rid of it and reclaim the sec 455 tax paid on it, please?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I'm Keith and happy to help you with your question.
Let us be quite clear so we are both singing off the same hymn sheet. Are these moneys which he owes the company or loans made by him to the company? It looks to me like the former.
Once we have determined this we can move forward.
Customer: replied 1 year ago.

Moneys he owes

Thanks

Expert:  bigduckontax replied 1 year ago.

Having just had lunch an hour and a half late, being a diabetic, not a good idea, I can be more responsive.

Here is Accountancy Live's advice on the recovery of s.455 tax:

'Getting the s455 tax back

Section 455 is effectively a stand-alone tax charge, which is ‘deposited’ with HMRC. If the loan or overdrawn DLA is wholly or partly repaid (or released), the appropriate portion of the s455 tax is discharged (ie, effectively cancelled) or refunded. This section initially looks at the amount of the loan outstanding at the company’s year-end. However, provided the loan is repaid within nine months of the year-end, the s455 liability is effectively cancelled and the tax does not have to be paid over.

In practice, the company often avoids the payment of an actual s455 tax charge by arranging for owner manager to draw an appropriate bonus or dividend, which is credited to their loan account within the nine-month period. However, if the loan remains outstanding beyond the nine month due date, HMRC will seek the s455 tax and charge interest from the due date until the tax is paid. Section 455 levies a tax charge, equal to 25% of the advance or loan, where a close company makes a loan to a participator or their associate When the loan is subsequently repaid, the repayment of the s455 tax is deferred until nine months after the end of the CTAP in which the loan is repaid or reduced (s.458).'

If this loan is not going to be repaid as it would appear then the director's could resolve to write it off to the profit and loss account as an exceptional item which would have to be separately reported in the statutory account. This would remove the loan and open the door to recovering the s.455 tax paid.

Personally I would use a tracing agency to locate him or her and sue them for this substantial sum in the appropriate forum, the County or High Court (Sheriff or Court of Session in Scotland). However this would need the approval of the directors and they may not wish to so proceed. What the shareholders might say is quite another matter, but probably these and the directors are one and the same!

Whether or not the past director declares dividends on his own tax returns is a matter for him and HMRC; the company is not involved.

I do hope I have been able to assist you with your problem and shown you a way forward.

Customer: replied 1 year ago.

You are correct the director & shareholder are the same person

The remaining director is worried about being assaulted if he gets in touch!

So I think he'll let it lie

Thanks again

George

Expert:  bigduckontax replied 1 year ago.
OK George! I had exactly the same situation over a judgement debt I had from the Sheriff Court where the car sales owner who had sold me a car with a defective engine told me he would come and duff me up. Th local police said that if he came within half a mile of my house they would arrest him for some substantial Scottish criminal offence.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3097
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your excellent support.

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