Alexander Lauren Associates Limited (“the company”) was placed into liquidation in 2012. The directors owed the company in excess of £1 million via their directors’ loan accounts (“DLA”). The directors reached a settlement with the liquidator whereby they would repay £100,000 in settlement of their DLAs. The company / its liquidators released the balance of £900,000 in the tax year 2013 /14.
The First Tier Tribunal have recently decided that Section 415 of the Income Tax (Trading and Other Income) Act 2005 does apply in that income tax can be charged on the directors personally on the released balance of the DLA and the tax charge arose during the tax year 2013/14.
HMRC are taking an increasingly aggressive stance against directors who are writing off DLAs. If you have any clients in this position, please advise them on the potential tax consequences for them personally of seeking to settle their DLAs with an insolvency practitioner as a failure to do so may lead to your clients looking to blame and claim against everyone else but themselves.