CTM61530 - Close companies: loans to participators: company insolvent and loan irrecoverable

Where a company has become insolvent and is unable to meet its creditors, it is sometimes claimed that the payment of tax due under ICTA88/S419 on a loan to a participator should be waived because it will damage the interests of the company's creditors.

In these circumstances the company should normally take steps to call in the loan and any ICTA88/S419 tax would be repaid or discharged on repayment of the loan.

Where the loan proves to be irrecoverable in spite of the company's or the liquidator's efforts and it is clear that payment of the tax due under ICTA88/S419 would reduce the amount recoverable by arm's length creditors, a report should be sent to CT&VAT (Technical) with the files for the company and for the participator to whom the loan was made.