"Income tax is charged if– (a) a company is or was chargeable to tax under section 455 of CTA 2010 (loans to participators in close companies etc.) in respect of a loan or advance, and (b) the company releases or writes off the whole or part of the debt in respect of the loan or advance."
“60. The ordinary meaning of the term "written off" from the Cambridge English dictionary: "to accept that an amount of money has been lost or that a debt will not be paid" is helpful insofar as it seeks to provide a definition where there is otherwise none. Collins, also, provides an example of what a written off debt may look like in that it may yet be recovered by a company. But neither of these interpretations need apply in circumstances where there is a formal writing off process which has deliberately not been followed. 61. Even if we take the ordinary meaning of the term, we do not agree that the actions of the liquidator in writing the Report and in dissolving BOH amount to an acceptance that the money has been lost or that a debt will not be paid. The liquidator states clearly in Liquidator Letter 1 that there was no formal write-off of the Director's Loan Balance. The prospect of a reinstatement of BOH in order that Mr Quillan should be pursued at some future point is unlikely but not impossible. It was within the power of the liquidator to either release or write off the loan, yet he chose to do neither. This leaves the Director's Loan Balance open to be pursued on behalf of BOH should that become appropriate at some point in the future. To suggest otherwise is to ignore the intentions of the liquidator's actions and the plain meaning of his language when he said that the Director's Loan Balance had not, in fact, been written off. 62. Finally, we are not persuaded that the Guidance is helpful in stating that "any loan balance which is not repaid and is no longer being pursued by the Insolvency Practitioner is considered to have been written off and that S415, ITTOIA05 should apply to the relevant amount." While we agree that there is no statutory definition of "written off", there is a process available to the liquidator to write off or release the loan of an insolvent company, which the liquidator chose in this case not to follow. In our view, in this case, that is the definition of "written off" which should be applied, and an alternative definition should not be substituted for the purposes of the application of s 415(1) ITTOIA.”
“That the Tribunal erred in law in holding that the [Outstanding Balance] was not ‘written off’ within the meaning of s 415 ITTOIA 2005.”
“It is common ground that releasing and writing off are different operations for a company. A release is a final and conclusive act if completed according to law whereas the act of writing off by a company may not be. A debt which is written off may yet be recovered by a company if it discovers that the debtor’s circumstances have changed so that it is no longer unable to repay the creditor company.”
‘While we agree that there is no statutory definition of “written off”, there is a process available to the liquidator to write off or release the loan of an insolvent company, which the liquidator chose in this case not to follow. In our view, in this case, that is the definition of “written off” which should be applied, and an alternative definition should not be substituted for the purposes of the application of s 415(1) ITTOIA.’
“We consider that the legal test is whether, as a matter of substance, the debt was written off…. While the liquidator did not undertake a formal statutory write-off process, section 415 does not require adherence to any particular insolvency mechanism. It requires a substantive write-off, which may be effected by an unequivocal communication and the cessation of enforcement….”
“I am still continuing my enquiries into the director’s current financial position.”
“We consider that the legal test is whether, as a matter of substance, the debt was written off. The Appellant placed weight on the non-admission clause in the Settlement Deed. We accept that this clause means the Appellant did not concede liability. However, section 415 does not require an admission of liability, and we do not consider the non-admission clause precludes a write-off where the liquidator, having actively pursued recovery, then notifies the Appellant that they regard the balance as concluded and ceases enforcement. In Quillan, the liquidator expressly stated the loan had not been written off. Here, the liquidator expressly stated it had been effectively written off and ceased enforcement. It is our finding that the liquidator's letter reflected a clear, unilateral decision no longer to pursue the balance. As section 415 applies to a unilateral write-off, this is sufficient.” (Emphasis added)
“71. While the liquidator did not undertake a formal statutory write-off process, section 415 does not require adherence to any particular insolvency mechanism. It requires a substantive write-off, which may be effected by an unequivocal communication and the cessation of enforcement. In our judgment, the combination of the settlement and the subsequent letter by the liquidator satisfies the statutory requirement. Our finding is therefore that the debt was written-off. A finding to the contrary would ignore the intentions of the liquidator's actions and the plain meaning of his language when he said that the loan balance had been effectively written off (see Quillan at [61] above).” (Emphasis added)
“…the Director has made an offer of£57,500 to settle the claim. The payments are due in instalments over a six-month period and although I am still continuing my enquiries into the director’s current financial position….”
“On15 April 2020 the company exited Liquidation and moved to Dissolution and therefore for the purposes of section 415 ITTOIA 2005, if the remaining outstanding amount is not found to have been written off following payment of£57,498 and the statement from the Liquidator that no further funds were expected in this respect, then it was written off upon the company being dissolved on15 April 2020 .”
“However in not pursuing the remaining balance and by allowing the company to exit Liquidation and enter dissolution, I consider this does equate to a write-off of the outstanding amount of the Director’s Loan Account….”
“It is also the contention of counsel for the taxpayer that one must look to see whether anything has left the company. That contention is denied by Mr Ali for the inspector who submits that one must look only at what has reached the taxpayer. In that context it is helpful to look at the words of [section 415 (1) ITTOIA] and to note that there is reference to '... a sum equal to the amount so released or written off'. It is common ground that releasing and writing off are different operations for a company. A release is a final and conclusive act if completed according to law whereas the act of writing off by a company may not be. A debt which is written off may yet be recovered by a company if it discovers that the debtor's circumstances have changed so that it is no longer unable to repay the creditor company. A release is generally a transaction involving more than one person, whereas by its very nature an act of writing off by a company is unilateral. It does not seem to me that one's attention is necessarily directed to the sum of money which leaves the company. The taxpayers received£68,000 from the company by way of loan which the company released subsequently. In my view the facts of this case fall clearly within the ambit of [section 415(1) ITTOIA]. Although counsel has argued his clients' case in a most persuasive manner, I cannot accept his contentions.”
“Counsel for the taxpayers submitted that while it was true as a matter of technical analysis that a novation amounted to the release of a debt due from the original debtor and its replacement by a debt due from a new debtor, this was not enough to bring the transaction within the meaning of the word 'releases' in [section 415(1) ITTOIA]. He submitted that the meaning of the word 'releases' must be qualified by importing the requirement that any such release must be wholly voluntary or gratuitous or made for less than full consideration. He pointed to the fact that the word 'releases' went with 'writes off' and while the writing off of a debt did not affect the legal relationship of the parties, it constituted for all practical purposes a release of the debt in the sense that the debtor would be unlikely to be pursued by the company for repayment of the debt, and the writing off of a debt would invariably be voluntary or gratuitous. He submitted that the word 'releases' should be similarly construed. I do not find that argument of much help. The mere fact that the writing off of a debt is almost certainly gratuitous does not mean that the release of a debt must mean a gratuitous release. In my judgment, it is not permissible to import any such qualification into the word 'releases'. To adopt the language of Lord Wilberforce in IRC v Plummer[1979] STC 793 at 800,[1980] AC 896 at 911, that would be legislation not interpretation. If Parliament had intended the word to mean 'releases otherwise than for full value' it could and must have said so. Nor am I impressed by counsel for the taxpayers' submission that ss 286 and 287 are concerned with the depletion of the assets of the company. If the company claims full value for the release of the loan its assets are unaffected and, it is submitted, the section should have no application. But in my judgment s 286 is focused on the company's position and [section 415 ITTOIA] on that of the participator. The question under [section 415 ITTOIA] is not whether thecompany's assets are or are not depleted but whether the legal obligation of the participator has been released.”
“The taxpayers contend that [section 415 ITTOIA] applies only to releases given gratuitously or for less than full value and not to releases given for full value such as those which were given by the company in the present case. On their behalf Mr Thornhill QC, recognises that this contention necessarily invites us to put a limitation on the ordinary meaning of 'release', which comprehends a release given for full value no less than one given gratuitously or for less than full value. But he says that the limitation is required by the context both of [section 415 ITTOIA] itself and of the provisions of the 1970 Act relating to company distributions as a whole. With regard to [section 415 ITTOIA] itself, Mr Thornhill relies on its application not only to releases but also to the writing off of loans or advances. He submits that the inclusion of writing off, an inherently gratuitous exercise, demonstrates that the releases which the subsection has in view are likewise confined to those given gratuitously or for less than full value. Although it may be possible, in theory at any rate, to conceive of a case where a writing off was not gratuitous, I will certainly accept that Parliament did not have such a case in mind. But on the wording of [section 415 ITTOIA] itself I can see no warrant at all for putting a similar limitation on the releases which are contemplated.”
“Overdrawn Directors Loan Account The Statement of Affairs listed an overdrawn Director’s Loan Account in the sum of£439,954 .00. An initial request for payment was made although the director advised that he had no means to pay. Enquires [sic] were made with the Director with a view to reaching a settlement to discharge his overdrawn director’s loan account. A statement of means was received which suggested the director has no assets and insufficient income to make an offer of settlement. Following protracted correspondence and the threat of legal action, the Director made an offer of£57,500 to settle the claim. The funds were due in instalments over a six-month period. To date,£57,498.00 has been received in respect of the overdrawn Director’s Loan Account. No further funds are expected into the liquidation in this respect.”
“As soon as the company’s affairs are fully wound up….”
"to accept that an amount of money has been lost or that a debt will not be paid" is helpful insofar as it seeks to provide a definition where there is otherwise none. Collins, also, provides an example of what a written off debt may look like in that it may yet be recovered by a company. But neither of these interpretations need apply in circumstances where there is a formal writing off process which has deliberately not been followed. 61. Even if we take the ordinary meaning of the term, we do not agree that the actions of the liquidator in writing the Report and in dissolving BOH amount to an acceptance that the money has been lost or that a debt will not be paid. The liquidator states clearly in Liquidator Letter 1 that there was no formal write-off of the Director's Loan Balance. The prospect of a reinstatement of BOH in order that Mr Quillan should be pursued at some future point is unlikely but not impossible. It was within the power of the liquidator to either release or write off the loan, yet he chose to do neither. This leaves the Director's Loan Balance open to be pursued on behalf of BOH should that become appropriate at some point in the future. To suggest otherwise is to ignore the intentions of the liquidator's actions and the plain meaning of his language when he said that the Director's Loan Balance had not, in fact, been written off. 62. Finally, we are not persuaded that the Guidance is helpful in stating that "any loan balance which is not repaid and is no longer being pursued by the Insolvency Practitioner is considered to have been written off and that S415, ITTOIA05 should apply to the relevant amount."