Tax being lost to the Chancellor from released or written off overdrawn directors’ loan accounts might seem a touch uninteresting as a subject.
But just let me stop you there.
Consider that the number of companies that go into liquidation each year is probably in the region of 20,000, many of which may have overdrawn director’s loan accounts that do not get fully repaid. So the question might have some merit.
FOI Overdrawn Loan Accounts Request
As a result, we decided to ask HMRC under the Freedom of Information Act to see what we could discover and asked the following questions in an FOI request on or around 21 May 2024:
“Please can you confirm for year 2021-2022:
- The tax collected by HMRC under Section 455 of the Corporation Tax Act 2010.
- The tax repaid by HMRC under Section 458 of the Corporation Tax Act 2010.
- The tax collected under Section 415 of the Income Tax (Trading and Other Income) Act 2005.”
HMRC told us they did indeed have this information but it would be too costly to provide it.
Nevertheless, they generously volunteered other information which suggests tax could perhaps be lost.
Tax Return Data On Overdrawn Director’s Loan Accounts
It turns out that in the tax year 2021-22, 573 taxpayers informed HMRC on the relevant part of their personal tax return close company loans were written off or released with the amount totalling around £16 million.
Now it is here that the response is interesting because an amount released or written off on an overdrawn director’s loan account should ordinarily be declared on an individual’s personal tax return. This number (yes 573) is not confined to taxpayers who are directors of companies that went into liquidation. Could this mean that Section 415 tax is being lost on an industrial scale?
In the same accounting period 2021-22, 156,580 companies submitted details of a figure over £0 on the relevant parts of the CT600A where overdrawn director’s loan accounts have been mentioned in corporation tax returns.
Could this be an opportunity for a targeted recovery of tax for the next Labour Government?
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Disclaimer: Is A Lot Section 415 Income Tax Lost From Overdrawn Directors’ Loan Accounts?
This page is not legal advice and is not to be relied upon as such. This article Is Section 415 Income Tax Lost From Overdrawn Directors’ Loan Accounts? is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.
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