The release of loan to a participator who was also a director was, in the absence of any evidence to dicate otherwise, treated as earnings for NICs purposes.

In Stewart Fraser Limited [2011] UKFTT 46 (TC) a director’s loan account was allowed to go overdrawn. This practice reoccured over several years with the balance written off annually by the company. It was claimed that this practice was necessary because a dispute with a minority shareholder prevented the company from voting dividends. 

The company's evidence was thin. Despite the fact that HMRC's representative placed what might be seen as over reliance on HMRC's own manuals, the First Tier Tax tribunal turned down the company's appeal and decided that HMRC's analysis was correct; in this instance, the write off should be treated as earnings from employment. 





Amount written off




Salary (also paid to the director)




The tax and social security legislation

Key findings:


The Tribunal found that the company was unable to produce any evidence to support the contention that the waivers of the loans were payments to the director in his capacity as a majority shareholder.

Our comments

There was some unusual circumstances in this case and it is difficult to tell what was really going on. A shareholder’s dispute it not unheard of but it is less usual to be in a position where a dispute has lasted four years and still not to be able to produce any evidence of it. Perhaps, with hindsight, evidence could have been better presented with more input from the accountants advising the director in his capacity as shareholder? That might have tipped the balance in the company's favour.