Loan Account

[Blue One]

A quick question, if you have a small UK LLP, with owner shareholders, and it builds-up a directors loan account, does that loan account have to be paid back at some point, and, if so, to whom if it is the owner/directors loan account? In one scenario, can you simply liquidate a company and the loan is wiped (out provided all interest payments on the loan have been paid to HMRC), are there any other possible scenarios?

Thanks

Edited by Blue One on Wednesday 28th October 08:53

[C350Akra]

First of all, an LLP is not a company, therefore has 'partners', not 'directors'. You also do not say whether the loan(s) are to or from the partners? If from, this is just an amount forwarded to the partnership by each individual partner. If you wish to terminate the partnership, all other things being equal you should refund the loan(s) in the proportion that each partner put in.

[anonymous-user]

The loan account balance would have some value to someone, sometime.

Whether that is worth enough to keep the company going if other pressures to liquidate it exist is a question that only those involved can answer

I am not sure how the treatment of the loss from writing off the loan would weigh up against the taxable income declared as interest. Whether it would be (or have been) better to treat the interest payments as repayments of the loan balance for instance.

[Eric Mc]

Which way round is the loan account? In other words, does the company owe money to the director or does the director owe money to the company.

If the company owes money to the director, from a legal and tax point of view, that is not too bad - the director gets repaid as and when the company can do so.

If the director owes money to the company, that can create all sorts of problems - some which may turn out very costly. The key issues are -

PAYE Benefits in Kind
Section 455 ICTA "Illegal" loan penalty Corporation Tax
General contravention of Company Law