Closing Ltd Company with large directors credit

noodles

Anyone got knowledge on how to use the directors credit if an company ceases to trade. I understand it can be used against capital losses personally....
Why also would you consider converting it into premium shares instead?

Any discussions on this would be interesting

deanshepherd

Not sure you can claim a regular directors loan account as a capital loss.

You can, however, claim a capital loss on shares that have become worthless. If you converted the loan to shares (and they must be a new issue) then you could claim a capital loss but only if the shares had value at the time they were issued. i.e. you can't do it immediately prior to winding up and pretend that the company was worth £25k when the only thing on it's balance sheet was a loan to the director of £25k, £100 share capital and £24.9k negative P&L reserve.

noodles

Thanks Dean.
So basically what we are saying is that any directors credit is wasted if there are no funds available to draw on it unless I have done some forward thinking and transferred to premium shares a short time before they close the business. This however will mean that they will not be able to get out their funds once the transfer has been made as they may change their mind and not close the company and decide they can draw on the funds.

It is rather a difficult decision to make isnt it?

deanshepherd

Actually I now think you probably can claim relief for the loan balance, provided the company is wound up or liquidated. There is a reasonably good article here that may help and S.253 TCGA is where it is in the legislation.

stevo5678

Hi Dean,

I personally don't think this article and legislation is relevant in the context of directors loans

Quote: "In addition, the parties must not be connected as spouses, civil partners or group companies"

I think this is in respect of loans to external businesses, otherwise there could be some serious manipulation going on if directors could claim relief on loans to their own company. Plus I have never seen this in practice.

So I think you were right in the first instance!

deanshepherd

Hi Stevo5678

The article is relevant, it refers to the legislation covering exactly this matter.

In your quote above please confirm which of spouse, civil partner or group company you believe applies to this case?

Please also stop using the argument that you have never seen this in practice. With respect, that means nothing to me. I know other accountants who do claim such relief based on S.253, I'm just not 100% sold on the legislation.. yet!

noodles

thanks for the replies. I was under the impression that you could claim back a directors credit against capital gains tax if you closed your business. What was confusing me was that I saw another accountant use the credit against premium shares so that the balance sheet looks better. I had never seen this been done before. There is always something new you learn which makes it more interesting ......