Everything You Need to Know About Director’s Loan Write-Off and the Douglas Boulton Case

In a 2026 tax appeal, the First-tier Tribunal (Tax) upheld HMRC’s view that a written-off director’s loan triggers an income tax charge. The case involved Douglas Boulton, sole director of Sameday Express UK Ltd, who had an overdrawn director’s loan account (DLA). The company went into liquidation, and Boulton settled only part of the debt. When the remaining balance was “written off”, HMRC treated it as taxable income under Section 415 of the Income Tax (Trading and Other Income) Act 2005.

How Can a Director’s Loan Trigger Income Tax Charge?

Background of Douglas Boulton Case: 

Boulton’s 2013 company accounts showed a £151,802 loan owed to him. When the company liquidated in 2014, a creditors’ statement surprisingly listed just £18,000 owed. The liquidator challenged the amount and pursued the full balance.

Settlement

In March 2020 Boulton agreed to pay £60,000 in “full and final” settlement of the company’s claims (without admitting liability). Shortly after, the liquidator wrote to Boulton confirming the unpaid balance was “effectively written off” and advised him to report it as income.

Tax Return

Boulton filed his 2019–20 tax return in April 2021 but did not disclose the loan write-off. He believed that, since the settlement was without admission of liability, there was no formal debt forgiveness.

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HMRC Action and the Discovery Assessment

In 2023, HMRC issued a discovery assessment for £91,802 on Douglas Boulton, the sole director of Sameday Express UK Ltd. This amount represented the original loan of £151,802 minus the £60,000 Boulton had already repaid. HMRC’s decision was based on the assumption that the remaining debt had been released or written off. Additionally, HMRC imposed a 15% penalty for failing to declare this income.

Tribunal’s Ruling

Boulton appealed this assessment to the tax tribunal, which ruled in HMRC’s favour. The tribunal agreed that the loan had effectively been written off and was therefore taxable under Section 415 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005).

• Section 415 ITTOIA 2005 mandates that individuals are liable for tax on any loan from a close company that is written off or released.
• The tribunal concluded that Boulton’s loan had been discharged when the liquidator ceased all efforts to recover the remaining balance and confirmed that it was written off.

In essence, the tribunal ruled that Boulton had received a taxable income in the form of the £91,802 that had been forgiven.

Key Points in the Tribunal’s Decision

• Settlement Agreement: The tribunal noted that the language of “full and final settlement” in Boulton’s agreement signified that the remaining loan was forgiven. Although there was no explicit admission of liability, the facts showed that the liquidator treated the unpaid balance as irrecoverable.
• HMRC’s Manual: HMRC’s guidance on liquidation settlements clarified that when a company settles a loan and leaves part of it unpaid, the unpaid portion is considered written off for tax purposes. This applies even if the liquidator stops chasing the debt or if they accept a partial payment as full discharge.
• In Boulton’s case, the liquidator’s confirmation that the remaining £91,802 was no longer recoverable confirmed that the loan had been written off.

HMRC’s Interpretation of Director’s Loan Write-Offs

HMRC’s Company Taxation Manual outlines that if a liquidator and a director enter into a settlement agreement that fully discharges the debt, even if only partially paid, this is deemed a loan write-off under Section 415.

In Boulton’s case, the tribunal affirmed that HMRC’s discovery assessment was valid because the remaining debt had effectively been written off, and Boulton had not reported this loan forgiveness on his tax return.

Tax Treatment of Written-Off Loans

HMRC treats written-off loans as dividends rather than salary. Under the current tax laws, the amount of the loan is the chargeable amount, and since 2016, the earlier gross-up calculation has been removed. Therefore, directors are required to report any loan forgiveness as income.

Failure to disclose such amounts can lead to penalties and back-tax assessments, as demonstrated in Boulton’s case. The tribunal’s decision reinforces the importance for directors to declare any loan forgiveness promptly.

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Tax Rules on Director’s Loans

For UK company directors, any overdrawn director’s loan account can create tax traps. A company pays tax (Corporation Tax) if a loan to a participator isn’t repaid within 9 months after year-end (Section 455 CTA 2010), but the director also faces personal tax if the loan is later forgiven. The key rule is Section 415 of the Income Tax (TOIA) Act 2005:

• Section 415 ITTOIA 2005: If a loan or advance made by a close company to a participator (e.g., a director/shareholder) is released or written off, the amount is treated as the individual’s income (a tax charge).
• Close Company: A “close company” is typically one controlled by a small number of shareholders (often the directors themselves). Most owner-managed companies fall into this category.
• Liquidation Context: HMRC’s manuals (CTM61560) explicitly say that once liquidation begins, a liquidator is expected to write off irrecoverable director loans. Any such write-off incurs a charge under s.415 on the director. Even without formal documents, if the company ceases pursuit of the debt, HMRC will treat it as written off.

In practice, when a company dissolves, the director may receive net asset distributions that reduce the loan. But if any balance remains after capital distributions and is then “released” (forgiven) by the liquidator, s.415 tax follows. This tax is calculated as ordinary dividend income (so taxed at dividend rates), and credit is given for basic-rate tax already deemed paid on the amount (for post-2016 tax years, it’s a simpler one-step charge).

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Tribunal Outcome

In Douglas Boulton v HMRC [2026] (FTT number TC09846), the Tribunal upheld HMRC’s assessments. It found:

• Accounts vs. Statement of Affairs: Boulton’s signed company accounts were reliable; the later statement showing a smaller debt was not on the company’s books and was therefore ignored.
• Loan Release: After accepting £60,000, the liquidator clearly wrote off the remaining £91,802. The tribunal held that this amounted to a release/writing off of the debt under s.415. The absence of an “admission” in the settlement did not stop the debt being forgiven in law.
• Tax Charge: Boulton was assessed for income tax on £91,802 under s.415. HMRC was right to issue a discovery assessment. Any tax due would be on that amount as dividend income.
• Penalty: The tribunal also confirmed a penalty. Since Boulton failed to disclose the loan write-off on his tax return, a 15% penalty on the unpaid tax was applied (as HMRC’s lost revenue). The case highlights that not declaring such amounts can trigger significant penalties.

This decision echoes earlier cases. For example, in Gary Quillan v HMRC [2025], a liquidator had explicitly said no write-off occurred and no tax was charged. In Boulton’s case, by contrast, the liquidator’s actions were clear that the debt was off the books. HMRC’s guidance makes plain that substantive write-off – even if informal – triggers s. 415. The Tribunal agreed no special insolvency procedure was needed; a unilateral decision by the liquidator to forgo recovery sufficed for tax purposes.

What This Means for Directors

1. Always Monitor Your DLA: If your company owes you money, keep track of any repayments or write-offs. A loan that disappears without repayment can become taxable income.
2. Report Write-Offs: If part of a director’s loan is formally or effectively forgiven (especially in liquidation), report it on your Self Assessment. HMRC expects such income on a “miscellaneous” page if it isn’t covered elsewhere.
3. Seek Advice: Situations involving liquidations and debt settlements are complex. Professional tax advice can prevent unpleasant surprises. If HMRC audits or disputes a loan write-off, having accounts in order and expert help can make the difference.
4. Understand Penalties: Unreported taxable amounts can lead to discovery assessments and penalties. Late or inaccurate disclosures usually incur penalties under HMRC’s rules (often 15% or more of the tax due).

By following good practice – accurate accounting records, full disclosure, and early advice – company directors can avoid cases like Boulton’s.

How We Help Directors in UK

At Apex Accountants, we help business owners navigate complex tax issues. Our services include:

• Tax Planning & Advice: We advise on directors’ loans, dividends and remuneration strategies to minimise unexpected tax charges.
• Company Accounting & Reporting: We prepare and review company accounts (including director loan balances) to ensure transparency and compliance.
• Liquidation & Insolvency Support: If your company is winding up, we guide you through the tax implications of loan write-offs, asset distributions and closure.
• Self-Assessment & Disputes: We handle your personal tax returns carefully. If HMRC challenges a loan write-off (or any issue), we can represent you and manage any appeals or penalties.
• Crisis Response: In cases of HMRC discovery assessments or late audits, we provide urgent help to gather evidence, clarify your position, and minimise any tax or penalties owed.

Our team stays up-to-date on cases like Douglas Boulton v HMRC. We can help you understand how these rulings affect your finances and how to comply with the rules.

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Conclusion

The Douglas Boulton tribunal case is a clear reminder that any director’s loan debt that goes uncollected can count as taxable income. Writing off a loan – explicitly or effectively – triggers an income tax charge under Section 415 ITTOIA 2005. Directors should keep meticulous records and seek expert advice when dealing with loans and company closures. With proper planning and timely disclosure, you can avoid unexpected tax bills and penalties.