Writing off inter-company loans

[The Spartan]

Interested in this. I loaned money from my company to a SPV that I setup to buy a BTL property. I was under the impression that if I close my ltd company there would be no tax implications.

Provided that the parties are connected and the loan was legitimate, you should be able to write it off as it's tax neutral. However check with your accountant and see if you can speak to someone senior, apparently it's not a common scenario and catches out a lot of accountants. Additionally I'm not sure if the timing of the loans also play a factor.

Initially I received bad advice, which I'm not too pleased about which may effect my decision on what I do next. Again try and speak to someone with a bit more experience.

[avonleigh]

Interested in this. I loaned money from my company to a SPV that I setup to buy a BTL property. I was under the impression that if I close my ltd company there would be no tax implications.

[ChimpMaster]

This is exactly what I am looking for but my accountant doesn't seem to understand this and wants me to keep the company open allbeit non-trading, may I ask who was the IT accountant? It seems I should be shifting my business to them. I am more than happy to pay for tax advice , if anyone could recommend a good tax adviser.

I used mmti.co.uk

Apologies for delayed response. I don't use CUK much now.

[The Spartan]

My IT accountant gave me the same advice as posted here:

Sister company loan write off - tax implications | AccountingWEB

Apparently he has done this for other clients in the past. Make the most sense too because it's non-event for tax purposes, i.e. the exchequer loses nothing.

So it looks like this is the way to go.

This is exactly what I am looking for but my accountant doesn't seem to understand this and wants me to keep the company open allbeit non-trading, may I ask who was the IT accountant? It seems I should be shifting my business to them. I am more than happy to pay for tax advice , if anyone could recommend a good tax adviser.

[abz2020]

Further to our PMs - no I didn't get it written off and probably won't. t.

In my view there isn't a case for writing off the loan because ultimately it still leaves the funds stuck in a corporate structure. I'd rather have the funds out personally so that I can choose where to invest them next, or frankly spend them!

I don't see any problem with the write-off so long as you follow the rules (majority ownership etc) but in my case I am likely to repay the loan and liquidate the IT company. Liquidation with capital distribution @ 20% (assuming no more ER) is the optimal way for me to get the funds to my personal accoun

So it is possible to write it off? What are the tax implications for the second company?
I am looking into opening a second company and loam it funds from my first one. I dont need the money to be out of corp structure, just in a new corp structure. Closing the old one.

[ChimpMaster]

Hi Chimpmaster,

What did you finally do? Did you get the intercompany loan written off?

Thanks in advance.

Further to our PMs - no I didn't get it written off and probably won't. t.

In my view there isn't a case for writing off the loan because ultimately it still leaves the funds stuck in a corporate structure. I'd rather have the funds out personally so that I can choose where to invest them next, or frankly spend them!

I don't see any problem with the write-off so long as you follow the rules (majority ownership etc) but in my case I am likely to repay the loan and liquidate the IT company. Liquidation with capital distribution @ 20% (assuming no more ER) is the optimal way for me to get the funds to my personal accoun

[Pegasus]

Hi Chimpmaster,

What did you finally do? Did you get the intercompany loan written off?

Thanks in advance.

[northernladuk]

Looks like a CUK thread with them two getting in to each other in that link lol.

[ChimpMaster]

My IT accountant gave me the same advice as posted here:

Sister company loan write off - tax implications | AccountingWEB

Apparently he has done this for other clients in the past. Make the most sense too because it's non-event for tax purposes, i.e. the exchequer loses nothing.

So it looks like this is the way to go.

[jamesbrown]

Speaking to my accountants and getting different views on the write off of inter-company loans. So I thought to throw this out here, in case the accountants here (or even the business owners) have experience on this topic.

2. Because these are 'close' companies the tax write-off will be treated as a write off of a director's loan and therefore income tax will be due on the director and the company will have to pay Employers NIC. (this one really threw me...)

I think you'll need to a tax specialist about this, not a contractor accountant. I wouldn't trust a contractor accountant on this.

I also wouldn't trust me. That being said, the second possibility sounds like nonsense to me. Perhaps they are confusing the writing off of a loan to a connected company (in this case, controlled by the same person, presumably) and the writing off of a *loan to a director*, which would, in any case, be treated as a dividend payment for the director (w/ class 1 NICs for the company). A loan to a connected company is not a loan to the director and I think the "treated as" in your option (2) is nonsense.

If the situation is plain vanilla and there is no question about the loan causing dividend payments from the creditor company to become ultra vires, then my guess would be that writing off the loan would not result in a tax charge for the debtor nor CT relief for the creditor. In other words, my guess would be that your scenario (1) is correct. However, I think this is definitely a case of speaking to a tax specialist, because there could be complicating factors that we aren't aware of.

[ChimpMaster]

Speaking to my accountants and getting different views on the write off of inter-company loans. So I thought to throw this out here, in case the accountants here (or even the business owners) have experience on this topic.

If you have an inter-company loan between connected companies, and you want to write off that loan, what are the tax implications?

Situation is similar to this: Connected parties Loan relationships | AccountingWEB

So far I've had different responses:

1. You can write off the loan and it is a tax neutral event, because you don't take it as a loss in one company and don't book it as a realised profit in the other company. For example as written here: Loan relationships - common problems demystified | ACCA Global

2. Because these are 'close' companies the tax write-off will be treated as a write off of a director's loan and therefore income tax will be due on the director and the company will have to pay Employers NIC. (this one really threw me...)