• Skip to main content
  • Skip to primary sidebar

DFC Accountants

Accountancy and Business Services in Cardiff, Wales

  • home
  • privacy statement
  • how we can help
    • accountancy
    • bookkeeping
    • VAT
    • payroll
    • taxation
    • share dealing losses
    • exit or succession planning
    • solutions for you
  • digital tax
  • meet the team
  • wealth management
  • advisory
  • news & updates
  • Login
  • contact us

Director’s Loan Account

17th August 2017 by

Ventura UK Ltd was a typical small company owned by four director/ shareholders in equal parts. One of the directors (B) lent the company around £240,000 at some point before April 2010.

It was agreed, but apparently not formally recorded, that B would be credited with £16,000 as an annual fee. It was not clear whether this amount was supposed to be a repayment of the loan (there was no loan agreement), or a fee for services (there was no contract between B and Ventura). These amounts were never actually paid, only credited to B’s director’s account with the company, so they failed as loan repayments.

HMRC took the view that the £16,000 annual fees were earnings on which PAYE and NIC were due. The tax was payable by reference to the earlier of the date on which the sums were credited in the company’s accounts, or the date B became entitled to the fee. When HMRC advised the company of the amount of PAYE due in late 2013, the company’s accountant made a prior year adjustment in the accounts to reverse eight years of fees (£128,000) due to B.

HMRC took the view that the annual sums had been accrued and any attempt to reverse the accrual by prior year adjustment was ineffective, so the PAYE and NICs remained due. The tax tribunal agreed with HMRC. The accounting adjustment may have absolved the company of its liability to B (in respect of the £128,000 of fees), but it could not absolve the company of its liability to HMRC.

All of this muddle could have been avoided if there had been a clear loan agreement between B and the company, and a contract for services between the two parties. Some clear notation on the accounting entries would have helped as well.

If you would like to discuss any of these issues further do not hesitate to contact DFC Accountants.

Filed Under: Uncategorised

Primary Sidebar

Contact Us

02920 448 120
julie.burrows@dfcaccountancy.co.uk
Address:
2 Alexandra Gate
Ffordd Pengam
Cardiff, Wales, CF24 2SA

News & Blog

  • Changes to VAT return wording – 08/04/2021 8th April 2021
  • VAT Partial exemption concession – 08/04/2021 8th April 2021
  • New rules for accounting records – 06/04/2021 6th April 2021
  • NMW rates – 01/04/2021 1st April 2021
  • New tax year – 01/04/2021 1st April 2021

© 2021 DFC Accountants Ltd · Site by The Clever Web Company

Address: 2 Alexandra Gate, Ffordd Pengam, Cardiff, Wales, CF24 2SA
Email: julie.burrows@dfcaccountancy.co.uk