More Director Loan Woes !

Sevren Registered Posts: 101 Dedicated contributor 🦉
Hi all, a bit of experience required please !

A client wishes to clear Director's Loan just prior to year end with a cash injection only to then take the money back out again a few days later.....

The objective is to improve the company credit rating and not avoid Section 419 liability - I can hear the Inspector's laughter now.

In my mind under HMRC manual EM8565 this is 'bed & breakfasting' to distort the balance sheet and have said so.

Client has taken advice from a chartered accountant who confirms that as long as the cash physically moves into the company, albeit only to move rapidly out again, then this is a legitimate transaction and the balance sheet is a true picture.

Before I bog myself down in ethics, any advice as to whether I am missing the point would be welcomed - apparently this is common practise !

Many thanks as always


  • deanshepherd
    deanshepherd Registered Posts: 1,809 Beyond epic contributor 🧙‍♂️
    From a tax point of view, it is a perfectly legitimate way of repaying a director's loan to avoid a S.419 liability. HMRC would love there to be legislation to stop this but, contrary to what their manual suggests, there isn't any.

    From an accounting point of view, well.. I'll leave that one up to the accounting standards expert!
  • beverly hudson
    beverly hudson Registered Posts: 95 Regular contributor ⭐
    I agree with the chartered accountant in terms of the accounting-as long as the money is paid in at the balance sheet date it matters not if it is subsequently withdrawn straight after. You are only reporting as at the balance sheet date-anything beyond that date is irrelevant. Im uncertain that there is an accounting standard for such a transaction.

  • Sevren
    Sevren Registered Posts: 101 Dedicated contributor 🦉
    Ok - many thanks !
  • Emthi27
    Emthi27 Registered Posts: 3 New contributor 🐸
    I think it may be a creative accounting
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