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Is Corporation tax payable on a directors loan balance which

Customer Question

Is Corporation tax payable on a directors loan balance which was in credit and written off?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
The writing off of a directors' loan balance reduces the indebtedness of the company. It thus enhances the profitability of the company and the amount written off would be included in the Corporation Tax (CT) computation. Whether it actually results on any CT liability is, of course, dependent on a plethora of other factors, but in simplistic terms the amount of the write off attracts CT.
I do hope that my reply has been of assistance.
Customer: replied 1 year ago.

Thank you for getting back to me.

The loan consists of £20k as a cash injection for the company, and the remaining balance being unpaid directors salaries, expenses paid by private funds etc.

I guess I can understand the latter attracting CT, as these expenses had previously been deducted in working put profits chargeable to CT, but I'm just finding it difficult to understand why the £20k will also attract CT as it was a loan and not relating to previous company expenses.

Expert:  bigduckontax replied 1 year ago.

By taking the loan a liability item would be created in the balance sheet. By paying off the loan in cash this indebtedness would disappear, but by writing off the loan the company's position would be enhanced hence the CT liability. Pay it back, no problem, but write it off and you expose the company to a greater element of CT.

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bigduckontax, Accountant
Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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