In a recent judgment, [2025] UKFTT 00421 (TC) the First-tier Tribunal has allowed the appeal of Mr Gary Quillan, confirming that no income tax charge arises under s.415 ITTOIA 2005 in relation to an overdrawn director’s loan account that had not been formally written off or released.
Mr Quillan, the sole director of BOH Investments Ltd, had an outstanding director’s loan balance of £439,954 when the company entered voluntary liquidation in 2017. After negotiations, he paid £57,498 in instalments. HMRC assessed him to income tax on the remaining £382,456, arguing that the loan had been effectively written off, thereby triggering a charge under s.415.
The Tribunal disagreed. It found that the loan had neither been released nor written off, as the liquidator had expressly stated the matter was unresolved and had not undertaken any formal release or write-off process. The fact that “no further funds were expected” did not amount to a write-off within the meaning of the legislation.
The judgment offers important clarification:
A loan must be formally released or written off to trigger a personal income tax charge under s.415 ITTOIA.
Inaction by the liquidator does not suffice.
This decision reaffirms the principle that while unpaid director’s loans can result in a s.455 CTA 2010 charge for the company, the director is not personally liable for income tax unless there is an express release or write-off of the debt.
When dealing with overdrawn director’s loans during liquidation, tax consequences hinge on the formal legal treatment of the loan, not merely on the fact that it remains unpaid.