Director Loan Accounts written-off as part of corporate insolvencies

In the October 2022 newsletter, we published guidance from HMRC on a process for Director Loan Accounts (DLAs) written off as part of corporate insolvency procedures. The guidance can be accessed here.

Members should note that the process is voluntary and there is no obligation put on an IP to report to HMRC when an over-drawn DLA has been written off either in full or in part. However, the IPA does consider that there needs to be careful consideration of how an overdrawn DLA is to be dealt with in an estate and the impact on the estate and the director.

There are a couple of issues to consider:

  • reporting a write off from a DLA could lead to recoveries for the estate if s455 tax has been paid as the write off may trigger a release of s455 tax paid (subject potentially to Crown Set Off). By not reporting there is the potential for failure to realise assets for an estate to arise
  • Notification to HMRC could trigger a personal tax liability for the director(s) who have ‘benefitted’ from the overdrawn DLA being written off. The DLA could potentially be reclassified as income subject to income tax that may need to be declared and be payable on the director(s’) next self-assessment tax return. It is important therefore that directors’ attention should be drawn to this potential issue and that they should be seeking their own independent advice
  • Members should also be alive to the fundamental principle of transparency in the Code of Ethics and ensure that the advice to the directors is fully noted, sent to the director(s) and a signed copy returned for your files to evidence that the position has been noted.


A question arises if the reporting of the unpaid/partly repaid DLA may constitute tipping-off. Members are reminded that tipping-off is an offence under S333A of the Proceeds of Crime Act 2002 (POCA). Disclosures where the offence of tipping-off may apply include in S333A(2)(b) disclosures to an officer of HMRC.

The guidance from HMRC is intended for circumstances where there was no intention on behalf of the director(s) to commit tax evasion or avoidance. If you have a suspicion that the DLA was set-up to purely perpetrate tax avoidance, then a SAR would likely be required and members should follow their internal SAR policy and report to their MLRO and discuss the position with them, but being mindful to avoid tipping-off.

The guidance indicates that any tax liability arises after the write-off in full, or part, of the DLA and it would seem that any potential issue on tax avoidance may occur if the director(s) fail to make the appropriate declaration on their next self-assessment tax return. Also, advising a director of a potential consequence to their self-assessment tax position caused by the actions of an office-holder would be similar to the advice that is given to shareholders in MVL cases that capital distributions may have personal tax consequences and that the shareholders should seek their own specialist advice and would not, in unsuspicious circumstances, be tipping-off.

Recommended actions

Whilst the process is voluntary, the IPA would recommend that:

  • Initial discussions on DLA are clearly held on file and are sent to the director(s) as part of the initial due diligence on potential appointments
  • The director(s) are advised to seek their own specialist advice on any tax implications that may arise on them from actions properly undertaken on the DLA
  • Where necessary, SIP 2 checklists and summaries include clear notes on actions taken to review and consider any DLA
  • Decisions and reasons to, or not to, report are fully file noted and deal with ethical considerations.

Members may find that questions on advice provided to directors on DLAs and decisions on whether to report any written DLAs are included as part of inspection visits.