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  • FIRST POST
    • Dal Whinnie
    • By Dal Whinnie 11th Apr 18, 8:05 PM
    • 154Posts
    • 56Thanks
    Dal Whinnie
    Shareholder Loan
    • #1
    • 11th Apr 18, 8:05 PM
    Shareholder Loan 11th Apr 18 at 8:05 PM
    My sister has a Limited Company where she and her partner are the sole shareholders and are also the directors. They are looking to wind the company up by means of a Members Voluntary Liquidation and they have been advised to close the bank accounts prior to appointing a liquidator and to loan the money to the shareholders. I didn't think small companies were allowed to loan to shareholders although I also recall there being some tax consequences if they did.
    Can anybody advise please
Page 1
    • TheCyclingProgrammer
    • By TheCyclingProgrammer 11th Apr 18, 9:28 PM
    • 3,173 Posts
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    TheCyclingProgrammer
    • #2
    • 11th Apr 18, 9:28 PM
    • #2
    • 11th Apr 18, 9:28 PM
    The company can loan the money to shareholders.

    The tax implications depend on the amount.

    Interest free loans over 10k will incur a benefit in kind charge.

    All loans incur a temporary corporation tax charge (s455) if not repaid within 9 months of the end of the company!!!8217;s accounting period.

    If they are shutting the company down the latter charge probably won!!!8217;t be an issue but the BIK charge might.

    Why have they been advised to do this?
    • Dal Whinnie
    • By Dal Whinnie 11th Apr 18, 11:09 PM
    • 154 Posts
    • 56 Thanks
    Dal Whinnie
    • #3
    • 11th Apr 18, 11:09 PM
    • #3
    • 11th Apr 18, 11:09 PM
    Thankyou for your response. The reason for closing the bank accounts is to minimise the work the Liquidator has to do thus enabling the costs to be as low as possible
    • 00ec25
    • By 00ec25 11th Apr 18, 11:50 PM
    • 6,496 Posts
    • 6,035 Thanks
    00ec25
    • #4
    • 11th Apr 18, 11:50 PM
    • #4
    • 11th Apr 18, 11:50 PM
    Thankyou for your response. The reason for closing the bank accounts is to minimise the work the Liquidator has to do thus enabling the costs to be as low as possible
    Originally posted by Dal Whinnie
    do you intend to do the liquidators work for them? You certainly should run down the balance in the bank before handing the accounts over to the liquidator, but do you intend to have paid off all creditors before doing so? Liquidator has to have cash to pay a) himself , b) remaining creditors, and c) the shareholders their residual (in that order). Won't be easy if the company no longer has an account...

    On the other hand you never hand over more cash than needed to a liquidator as the bank account is then frozen and you can't access it.

    the cycling programmer refers to a normal director loan account balance and associated rules. How much cash does the company actually have? Whilst still directors you can declare dividends and run down the bank that way, . Obviously if you take too much the liquidator will convert the dividend back into a loan anyway which you'll have to repay to refinance the company until the liquidator closes the company and pays you out the final distribution. is the plan to be below the 25k limit, or are you going to swallow the tax implications of being above 25k?
    Last edited by 00ec25; 11-04-2018 at 11:52 PM.
    • Dal Whinnie
    • By Dal Whinnie 12th Apr 18, 7:57 AM
    • 154 Posts
    • 56 Thanks
    Dal Whinnie
    • #5
    • 12th Apr 18, 7:57 AM
    • #5
    • 12th Apr 18, 7:57 AM
    I believe there is about 100k in the Company and that the reason for going through the formal liquidation route is to qualify for CGT Entrepreneurs relief. If any of this is paid out as dividends ahead of liquidation then it will be taxed as dividends rather than come into CGT.
    All debtors, creditors, tax, etc will be sorted prior to appointing liquidator. The normal procedure as I understand it would be for the bank balances to be paid into the Liquidators Client account rather than loaned to shareholders
    • TheCyclingProgrammer
    • By TheCyclingProgrammer 12th Apr 18, 10:41 AM
    • 3,173 Posts
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    TheCyclingProgrammer
    • #6
    • 12th Apr 18, 10:41 AM
    • #6
    • 12th Apr 18, 10:41 AM
    If they have any if their basic rate band left over then the dividend tax rate is lower than the CGT rate.
    • Dal Whinnie
    • By Dal Whinnie 12th Apr 18, 11:21 AM
    • 154 Posts
    • 56 Thanks
    Dal Whinnie
    • #7
    • 12th Apr 18, 11:21 AM
    • #7
    • 12th Apr 18, 11:21 AM
    I agree that the CGT rate (10% foe entrepreneurs relief) is higher than the 7.5% payable by a basic rate taxpayer on dividends but you still have to take account of the tax free elements. Assuming all your personal allowances are used up then the first 11,700 of gains are exempt whereas only the first 2,000 of dividends are free of tax.
    Therefore, if you have other income equal to the personal allowance and the potential gain is equal to the basic rate band (i.e 34,500) you would pay 150 more tax on a dividend.
    I believe the decision taken to go the MVL route and take advantage of the entrepreneurs relief is the best one it was just whether the proposal to close the bank accounts and loan the proceeds to the directors I was concerned about and whether there were any risks or consequences that I wasn't aware of
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