Loans

JJH1969

Can a director make a loan to a third party from company funds? If so what notes are needed in the accounts?

missmel

A Maintenance company I do books for loaned a large sum of money to a friend who is a builder, he had a contract drawn up by a solicitors saying the money was due to be repaid in full in 30 days, so I treated it as a loan in the balance sheet. DR Loan CR Bank

Then some 6 months later half the money was re-paid, DR Bank CR Loan
But then the owner told me to write off the balance as he wasn't going to get the money............
I have treated this as DR Bad Debts (P&L) and CR Loan - so loan is at zero now

But I would also like to know from the tax guru's on here :001_smile: what is the best treatment of this in the year end accounts? and have I treated it correctly as a bad debt when it was a loan?

omega man

This has a certain smell about it, as it is a specific bad debt it can be used to reduce the profit the company makes.
Therefore the company could arrange to lend the money to a friend, he repays half but the rest is written off.
The friend might give the money back privately to the owner of the business making this a tax scam and why i think this somewhat smells funny.
Ethically i would look for another job, as i would not want to work for such people using sharp tactics.

KernowAccountant

JJH1969 wrote: »

Can a director make a loan to a third party from company funds? If so what notes are needed in the accounts?

You need to break this down to ensure the proposal is intra vires. Firstly: can the company make the loan? You will need to refer to the company's articles. Secondly: does the director have the power to make such a loan without shareholder approval? Again, refer to the articles.

Notes to the accounts are derived from the financial reporting framework adopted - you will need to make reference to the relevant standards (FRS/FRSSE/IAS) and legislation (CA06/SCG(A&DR)R 2008 etc.) governing the preparation of the accounts.

KernowAccountant

missmel wrote: »

A Maintenance company I do books for loaned a large sum of money to a friend who is a builder, he had a contract drawn up by a solicitors saying the money was due to be repaid in full in 30 days, so I treated it as a loan in the balance sheet. DR Loan CR Bank

Then some 6 months later half the money was re-paid, DR Bank CR Loan
But then the owner told me to write off the balance as he wasn't going to get the money............
I have treated this as DR Bad Debts (P&L) and CR Loan - so loan is at zero now

But I would also like to know from the tax guru's on here :001_smile: what is the best treatment of this in the year end accounts? and have I treated it correctly as a bad debt when it was a loan?

Personally, I wouldn't put the debit to bad debts - it isn't a trade debt. Set up a new nominal account.

For tax purposes, as this isn't a trade debt (your client isn't a bank) the write off will form an add back in the computation of taxable trading profit. The loan write off represents a capital loss - refer to s253 TCGA 1992 for availability of relief.

JJH1969

He has the standard model articles and he owns 100% of the shares?

missmel

Omega Man - I understand where you are coming from but it is not a case of tax scamming it was more the current recession and lack of lending, I am sure no more lending will happen in the future!

Kernow Accountant -thank you, I'll follow that advise through.

jamesm96

Not to start any kind of an argument on this one, but I wouldn't have said the write-off represents a capital loss. I'd have said that the loan arrangement comes under the Non-Trade Loan Relationship rules; the company made a loan to a another party which was not made for the purposes of the business' trade, so any profits / deficits are NTLR losses / deficits.

The write off, I would say, is a Debit in the P&L relating to a NTLR and therefore should be taxed as such; i.e. set against any current or previous year total losses, or carried forward against future NTLR profits. That is unless the builder and your client are 'related parties'?

As an aside, the builder (assuming he borrowed through a limited company) would also recognise a credit in his NTLR.

missmel

Well after having read rather lot I do agree with James this is a non-trade loan and it has a deficit.
So I have started the HMRC's CT600 form and I am at baffled as to where this value needs to go on the computations.

Can anyone help please?

I can clearly see on the Co Hse sections the boxes that relate to the Non Loan deficit, but these are pre-populated from information entered on the Tax Computation which only has sections for Trading Losses.

I have put a call into HMRC's Corp tax helpline but its a 3 working day response, so I wondered if any one on here has come across this before?

missmel

just to clarify no previous non trade loans ever made, so no profits from a loan to off set against this loss. No future loans to be made.


Trade Profits made this year and previous years, so wish to set off non loan deficit against any kind of profit in the period, as set out in CFM32010.