In the case of G Quillan v HMRC [2025] UKFTT 421 (TC), the director owed £439,954 to his company. The company was placed into liquidation and the liquidators reached a compromise with Mr Quillan and accepted £57,498.

The liquidator closed the liquidation and HMRC raised an assessment under S415(1) Income Tax (Trading and Other Income) Act 2005 arguing that as the company had released / written off part of the loan account,  Mr Quillan was liable to income tax on the balance .

The director appealed, stating the debt had not been written off by the liquidator. The First Tier Tribunal allowed the appeal on the basis that they did not believe the debt had been written off.

The liquidator advised that the loan had not been formally written off and the compromise payment was a payment on account which allowed the liquidator to pursue Mr Quillan in the future if the event he received a windfall.

Writing off or releasing of directors’ loans is not uncommon. This case may be of assistance if you have any clients who are negotiating settlements in respect of their DLAs with office holders as the case makes it clear that a more formal process is needed for a release such as a legal agreement.