SE42735 - Director's undrawn remuneration lost in company's liquidation: adjustment to Schedule E liability

Where

• A company has gone into liquidation, and
• A director's undrawn remuneration has been lost because there are insufficient funds to pay it

then the Schedule E liability on that undrawn remuneration may be reduced by the amount lost provided certain conditions are satisfied. The Schedule E liability should be reduced whether or not any assessment or self assessment is final. The conditions that have to be met are

• The director is a creditor for the undrawn remuneration in the statement of affairs prepared in connection with the liquidation, and
• The remuneration was at no time capable of being drawn by the director having regard to the financial state of the company, and
• No additional Corporation Tax would be payable if the undrawn remuneration was to be disallowed in computing the company's profits or losses (for example, where existing surplus losses would be available to cover such a hypothetical disallowance).

It should be noted that remuneration waived prior to the liquidation must not be treated as undrawn remuneration lost by the director in the company liquidation. Where a director has voluntarily relinquished remuneration owing to him by giving it up in favour of the company he will not be a creditor of the company for that remuneration when the liquidation occurs.

For practical handling points on such a case see SE42740.