In a warning to small businesses managed without the benefit of financial or legal advice, a skip hire boss who claimed that over £300,000 in loans that he had advanced to his father’s company had turned bad has failed to convince a tribunal that he is entitled to set off the loss against his tax bills.
The businessman had used his father’s company to source plant, drivers and administrative services that were needed to run his two skip hire firms. He argued that he had been constrained to lend substantial sums to the company in order to shore up its cash flow and save it from liquidation.
He sought to set off £147,300 in bad debts against his firms’ profits, effectively reducing his business tax liabilities to zero over a three-year period. However, his application for bad debt relief under the Finance Act 2009 was rejected by HM Revenue and Customs (HMRC).
In dismissing his appeal, the First-tier Tribunal (FTT) noted that he was neither a money lender nor a bank and that the money said to have been loaned had rightly been treated as capital by HMRC. Such loans as were made also could not be said to have been wholly or exclusively for the purposes of his skip hire firms.
The monies advanced had not been recorded as debts in the firms’ accounts and the sums paid were in any event more in the nature of ‘over-payment for services rendered’ rather than loans. Even to the extent that they could be viewed as loans, they had not been necessary for the purposes of the skip hire firms.
In reality, the businessman was responsible for the day-to-day running of all three ventures and he had chosen to do so without seeking professional advice as to the best way of managing them. In suggesting that he seek accountancy advice, the FTT observed that it may well be that he would be able to claim the expenditure against his firms’ profits, but not by the route that he had attempted to take.