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Implications of an inter-company loan being written off
I act on behalf of two companies that are owned by substantially the same shareholders. Some years ago X Ltd loaned Z Ltd £100 000 which was used for trading purposes.
It has now become apparent that the loan will not be repaid and there being no assets I think that Z Ltd will soon be struck off.
The health of X Ltd is a little better and small profits have been made in recent years. Can readers advise what the tax implications of the loan write-off might be?
My main concern is whether this will have an adverse effect on dividend payments. The directors of X Ltd recently needed funds to buy a car and dividends of £20 000 were recently paid on the basis that profits of that amount are anticipated this year. Will the loan write-off cause problems in this regard?
Query 18...
