• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Company to company loan write off

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    Company to company loan write off

    Hi,

    A question on writing off part of a loan. A holding company has loaned money to another company and has decided to write off part of the loan. How should this be shown in the books? The directors of the holding company have signed a waiver letter.

    #2
    Something like this. From 2013 though.

    Many related businesses or groups of companies will often have a series of inter-company loans to and from one another in order to provide finance on an informal basis with more flexible repayment terms.

    Accounting standards require companies to assess their assets at the end of each period to ascertain whether there is objective evidence that particular assets are impaired. Part of this process may involve making a provision for bad or doubtful debts at the year-end which may well lead to the eventual release of the loans in question.

    Connected companies, however, need to be careful that they do not fall into a well-known tax trap when writing off an inter-company debt. For these purposes, companies are connected if one controls the other or both are under the common control of the same person; with control being via shareholdings, voting rights or powers conferred by the Articles of Association.

    Where connected companies release loans between each other, tax relief is denied in respect of the debit to the creditor company’s profit and loss account. The credit recognised in the debtor company’s accounts can be taxable, if not properly executed. This effectively creates a double tax charge.

    This inconsistency in the tax legislation can be avoided by ensuring that a Deed of Waiver is executed within the accounting period in which the loan is released. It is recommended that this document is formally drawn up by a solicitor. By ensuring that a Deed is in place at the time of the write-off of the debt, the credit to the debtor company’s profit and loss account will be able to be treated as non-taxable; thereby removing the duplication of tax on this transaction.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      Thanks

      Thanks for the response. So as we have the waiver letter will be treated as non-taxable.

      Apologies, but I'm very new to this, so my knowledge is somewhat lacking on this area. Should it be shown as a write-off or can the loan just be reduced down?

      Comment


        #4
        I wrote off a bad debt owed to a small plan B co. a few years back. I can't remember precisely what I did, but I did put a note in the accounts explaining it, and I guess listed it as a loss (rather than just reducing the debtors entry) otherwise the numbers wouldn't have added up. Was even able to get a CT refund.
        Will work inside IR35. Or for food.

        Comment


          #5
          Originally posted by GeeBee View Post
          Thanks for the response. So as we have the waiver letter will be treated as non-taxable.

          Apologies, but I'm very new to this, so my knowledge is somewhat lacking on this area. Should it be shown as a write-off or can the loan just be reduced down?
          Why are you doing this if you don't know anything about it?
          'CUK forum personality of 2011 - Winner - Yes really!!!!

          Comment


            #6
            Thanks VectraMan.

            Northernladuk - it's my job basically! I'm new into this role, and there are aspects of it I have no experience of, so am using it as a learning opportunity

            Comment


              #7
              Originally posted by GeeBee View Post
              Thanks VectraMan.

              Northernladuk - it's my job basically! I'm new into this role, and there are aspects of it I have no experience of, so am using it as a learning opportunity
              You are getting paid to do this???
              'CUK forum personality of 2011 - Winner - Yes really!!!!

              Comment


                #8
                So far, yes.

                Comment


                  #9
                  Originally posted by GeeBee View Post
                  So far, yes.
                  Are you an accountant or it's an accountancy gig? Wouldn't accountingweb be a better option rather than a board full of contractors?
                  'CUK forum personality of 2011 - Winner - Yes really!!!!

                  Comment


                    #10
                    I'm not an accountant, no.

                    I thought I'd try on here, amongst other options, as contractors are more fun than accountants. But, I'll take the hint and head off to accountingweb....

                    Comment

                    Working...
                    X