MVL - Overdrawn loan

[Maslins]

Maslins, did you ever reconsider your position on this?

Short answer - no.

Longer answer, if people are in a desperate rush to get their hands on the company cash, then there are options they can look at that other firms are prepared to accommodate. If the main priority is for tax purposes, then typically we can declare the distribution within a day or so of our appointment, then let the banks run their normal course, with payment following receipt of funds. Ie a bit like declaring a dividend to director loan account then paying it later, we'd be declaring the distribution then cash to follow. Plus side of this is you can get an early date of first distribution if there's a deadline from a tax perspective, but appreciate that's no use if you need the cash ASAP.

I do periodically have discussions with my business partner (the licensed insolvency practitioner behind MVL Online) about the possibility of one of the routes to get cash within a day or two of appointment, or indeed slightly before. Honest answer is at this point in time whilst we're coping fine with the case load we're getting, we're busier than ever, mainly due to the ongoing impact of IR35 changes. The reality of this is it in turn makes us less inclined to consider scenarios that don't go with our normal process. We anticipate a bit of a crescendo leading up to the March budget/tax year end.

Following the March budget, we'll either:
1) be killed off (if there's a significant change to CGT that makes us non-viable), with us just finishing off ongoing cases before likely closing the business, or
2) will reduce somewhat, simply as the time pressure of people wanting things done before budget/5 April 2021 passes. In this situation, if it's clear the business does still have a future, we'll likely look in more detail at options.

[bcontractor]

Maslins, did you ever reconsider your position on this?

[ChimpMaster]

Seen your comment re your accountant, I would still strongly recommend your situation is cash only as at final set of accounts stage. Otherwise your accountant will have to declare the outstanding loan on the CT return, with potential S.455 issues as they won't be able to confirm the loan has been cleared with a date in the future.

Ignoring that though, yes, if (and at this stage it's very much an if) we decide we're happy to go ahead with that, it would we could mock up paperwork for the first distribution within a day of our appointment, with that just clearing the loan you'd taken a few days earlier. I'm very much thinking that situation, rather than a case where a client has had a fairly permanent loan for ages.

Of course plenty of other liquidators out there who may well already offer this option or similar.

From a future customer's (me) point of view, this would be a good option to have.

[Maslins]

That would be great.

Would going down this route effectively speed up distribution, since you wouldn't need to wait for bank to transfer you the funds ?

Seen your comment re your accountant, I would still strongly recommend your situation is cash only as at final set of accounts stage. Otherwise your accountant will have to declare the outstanding loan on the CT return, with potential S.455 issues as they won't be able to confirm the loan has been cleared with a date in the future.

Ignoring that though, yes, if (and at this stage it's very much an if) we decide we're happy to go ahead with that, it would we could mock up paperwork for the first distribution within a day of our appointment, with that just clearing the loan you'd taken a few days earlier. I'm very much thinking that situation, rather than a case where a client has had a fairly permanent loan for ages.

Of course plenty of other liquidators out there who may well already offer this option or similar.

[amrhady]

I'll have a chat with my business partner (the licensed insolvency practitioner behind MVL Online) next week re this, see whether it's something that in certain circumstances we're happy to get involved with again.

That would be great.

Would going down this route effectively speed up distribution, since you wouldn't need to wait for bank to transfer you the funds ?

[amrhady]

Thanks.

Oddly enough, I spoke with my accountant today and raised that point, they actually said that they can't prepare cease-of-trade accounts if there's an overdrawn loan, and it needs to be repaid first...which I don't think is right.

I have forward them HMRC guidance and waiting for feedback.

[Maslins]

Yes it can via a paper transaction, but not all liquidators will deal with this as it adds complications to the process.

This.

Historically MVL Online offered to take on cases with director loans in a limited number of circumstances, and with an additional £200+VAT fee.

We stopped this about a couple of years ago, as:
1) there was a Taxation article suggesting risk shareholders would be taxed on the earlier drawing of cash as dividends, rather than it be treated as a loan cleared via distribution from liquidation. This would realistically negate the main benefit of offerings like ours.
2) being honest, they were a pain.

However, further guidance coming out since the Taxation article I refer to suggests it has been debunked/superceded/whatever, and that paper only distributions/distributions in specie to clear director loans should be ok from a tax perspective. We're still not massive fans...but where enough clients want something strongly enough, we may need to reconsider our business model/offering.

I'll have a chat with my business partner (the licensed insolvency practitioner behind MVL Online) next week re this, see whether it's something that in certain circumstances (predominantly where it's taken immediately prior to liquidation, rather than being a long term one with S.455 etc in play) we're happy to get involved with again.

[ahspooner]

Is this in effect a Distribution Of Specie ? As per Clarity on Distributions in Specie and S455 – Frost Group

[ChimpMaster]

Yes it can via a paper transaction, but not all liquidators will deal with this as it adds complications to the process.

[cojak]

But one of our accountant poster might know.

[northernladuk]

Don't know.

[amrhady]

Reference to this CTM61559 - Company Taxation Manual - HMRC internal manual - GOV.UK (Updated 23 January 2020)

If I am not mistaken, it does indicate clearly that loan can be offset against distributions and capital gains tax would apply.

Is that correct?