How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Sam Your Own Question
Sam, Accountant
Category: Tax
Satisfied Customers: 14200
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
Type Your Tax Question Here...
Sam is online now

This is not a tax question, but it is an accounting question

This answer was rated:

This is not a tax question, but it is an accounting question and I couldn't work out what other category to select!
My wife and I founded a UK company 3 years ago. We spent many painful months negotiating with an investor who eventually came in and took a majority stake.
However, the investor was funding us monthly PRIOR to the closing of the deal on the understanding that it all would get sorted out when we signed the deal.
He put his CFO on our board. When we eventually signed all the documents,
the CFO said that there were 3 things that had to go as our directors loans:
1) There was an overpayment to us of £2667 rent expense.
2) The investor, part way through the negotiating period, had switched from paying us a "per diem" in lieu of salary a month in advance to paying us a consultancy fee a month in arrears. So on the spreadsheet, he appears to have paid us an extra month. That's £4000.
3) There are £3000 worth of something that they can't account we can't account for. We know that we were scrupulously honest about the expenses, so we don't understand why the payments to us were £3000 more than our receipts. It's probable that there was a set of expenses overseas trip gone missing, because we did several expensive overseas trips in this period.
So my question to you is:
Certainly #1 is a valid directors loan. But are #2 and #3?
This is important because we have now been forced out the company and they want us to pay off the directors loans and we don't have any money. They have offered to offset the directors loans against part of our shares.
(If we could have afforded the time and money, we would have gone dismissal, but we didn't, we just resigned with a bad taste.)

Thanks question
2 and 3 are NOT directors loans
2) is at best owed fees to be paid out of forthcoming salary or some other agreed method
3) the same as 2 if it really cannot be established where this £3000 was paid out for.
At worst - that you are charged tax on both of these through PAYE (as if money had been paid as salary)
Customer: replied 3 years ago.

Thank you!

What I am going to say to them is that I am happy to pay #1 and #3 but not #2, as #2 was part of the start-up cost of the company.

Please can you tell us, as we are leaving the company, if we swap the debt of #1 and #3 of our stock, is there a tax liability ?

Also please can you tell us, if they agree to buy, say, £10,000 of our shares , what tax do we pay on the £10,000? As our UK income will be minimal next year (we now live abroad) - should we ask to be paid on April 6th?

Thanks response
All I can advise is that you seek legal representation on it, as they clearly are insisting this is how it will be done, and you clearly disagree.
If you swop 1 and 3 of your stock, its a question of whether they will accept this instead of the money.
However this will have a tax liability on you, as you are in essence paying part of a personal debt with company stock, and ideally you should make good this amount in money, rather than goods.
But 2 is a matter of them seemingly changing the goal posts part way through transactions, and whilst this though up what appeared to be an additional payment due to the fact both salary and fees were paid in arrears, - it would be worth you checking whether this amount is in fact owed, and make good this amount.
I have sent an additional Q & A Request on the new question you raise.
Sam and other Tax Specialists are ready to help you