Company owes the directors un paid salary and expenses

[Craggy]

Company owes the directors un paid salary and expenses which the Directors have agreed will never be paid, and they do not intend to press for payment. How would this be shown on the cessation accounts. Is it satisfactory to just identify the debt on the balance sheet as liabilities of salary and DLA or is a separate entry required detailing?

 

[ElyseBurnsHill]

Cessation accounts shouldn't show a creditor, especially if the directors said it won't be paid. You can either write it back through the P&L (which might create a taxable profit) or waive it as a capital contribution and credit reserves (which will need formal paperwork).

 

[David Griffiths]

There is no reason why cessation accounts shouldn't show a creditor. Plenty of companies are wound up/struck off owing money to the owners which might or might not be paid, In addition the cessation accounts would normally be drawn up to the date that the trade ceases, but the company might not be would up until some time later, and the balances might change in that period,

What the accounts should show will often be dictated by whether the company has a tax liability for the final period, You cannot include a tax claim for expenses which will never be paid, and in particular any salaries must be actually paid within 9 months of the year end, For salaries, have the wages actually been declared and filed for PAYE purposes at the appropriate time and then credited to the directors' loan accounts? if so, then that counts as being paid. If they haven't been subject to PAYE and an RTI filing, then they shouldn't be in the accounts.

 

[ElyseBurnsHill]

Fair enough, I was told while training that all creditors should be cleared off the balance sheet for a dissolution, and all that might be left is some corp tax - but then I think all the ones I've done have been dissolved immediately.

I felt that the accounts wouldn't show a true and fair view if the directors had confirmed that it would never be paid, so it wouldn't be correct to keep that particular debt on the balance sheet. Unless, of course, circumstances might change between accounts finalising and the date of dissolution meaning that some or all will be paid back, in which case I'd leave it on there.

 

[Daybooks]

There is not a legal definition of cessation accounts (happy to be proven wrong).

There is a requirement to pay any taxes due.

Cessation accounts drawn up at the end of actual trade that fix any tax liability may be accepted by HMRC.
https://www.gov.uk/government/publi...-online-filing-and-the-end-of-a-companys-life

However there is the period afterwards and for completeness, in an ideal position, the ledgers would conclude with recording the repayment of funds back to its shareholders.