Tax allowance for employees

SJ writes: I used to be a key employee in a privately owned business. The owner director of the company made me a number of promises about receiving increased salary and shares in the company, which have failed to materialise. The finances of the business became tight and I agreed to help out by loaning the company £60,000. I received a written agreement from the managing director that repayment of this loan would be made before any other creditor was paid. I advanced the company a further £30,000, but ultimately the company went into liquidation. The directors started a new company and the liquidator refused to pay my loan in preference to any other creditor. As a result, I lost all £90,000.

Do I have any legal claim against either the liquidator or director and how do I claim tax relief for the loss I have incurred?

Answer

Answer: If there is a claim, it is likely to be brought by the liquidator against the directors, rather than a claim brought by you, writes Ian Robert, insolvency partner in Kingston Smith. The liquidator may have been right not to pay you ahead of other creditors, as without legally enforceable security, you had no priority over them. To have security, you would have to have registered the security document at Companies House within 21 days, otherwise it is void.

By obtaining further borrowings from you, the director may be guilty of wrongful trading, meaning he has increased the liabilities to creditors, when insolvent, with no real prospect of avoiding an insolvent liquidation. In such a scenario, the liquidator may be able to recover any increase in the shortfall to creditors. This would be for the benefit of all creditors and not just you.

Had the money you paid to the company been to subscribe for shares, then you would be able to make a claim for the loss against your other income in the tax year in which the company went into liquidation. Since your loss has been incurred on a loan to a trading company, you only have a capital loss. This may be offset against any capital gains made in that the tax year or in subsequent tax years.