How to Clear an Overdrawn DLA?

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claudialowe
claudialowe Registered Posts: 275 Dedicated contributor 🦉
in General accounting discussion
I have got a limited company with a seriously overdrawn DLA, and no dividends to clear it with.

Client has been speaking to loads of different people at various different pubs :mad2: about the best way to clear this - but not having any actual readies :ohmy:

Does anyone have any ideas about how they could do this? He has suggested selling his house to the company - would this work?

Any legal ideas gratefully received :thumbup:

Claudia

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  • Dean
    Dean Registered Posts: 646 Epic contributor 🐘
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    Can't see any benefit to him selling his house to the company. I guess it could but it creates a PllD/rental income tax nightmare - not to mention the commerical reasons!

    Is this a newly formed company? Has the client transfered his trade etc. If so, you could create some goodwill in the company and credit his loan account.

    Could he introduce any other useable assets into the company?

    Regards

    Dean
  • claudialowe
    claudialowe Registered Posts: 275 Dedicated contributor 🦉
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    Hi Dean

    It has been going for a while, but I have only recently started to act for them. The DLA is massive, and understandably he wants to clear it, but hasn't got the cash - it is all the same old same old just using a ltd company like a private bank account :mad2: and I don't think that anyone had ever explained the consequences.

    I said that I would look into any ways apart from cash of repaying the loan.

    Claudia
  • PaulPSB
    PaulPSB Registered Posts: 55 Regular contributor ⭐
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    When you say there are no dividends do you mean no reserves that could be used to vote one?

    If there are no reserves is the company likely to make profits in future that would allow dividends in future "on paper" to clear the loan? If yes then I would leave the loan for now and let the company pay the S419 tax and the director the tax on the loan under BIK rules. Then use all future available profits to clear the DLA. It might be the cheapest option.

    Obviously the implementation of CA2006 means that a loan to a director over £5,000 is no longer illegal but if the loan is over £10,000 it should be approved by the shareholders in meeting. If there are no such minutes you should prepare some - especially if there are any other shareholders

    Paul :001_smile:

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