Judgment summary
This appeal concerned Gary Quillan, sole director and owner of BOH Investments Ltd (BOH), which went into creditors' voluntary liquidation in January 2017 with an overdrawn director's loan account of £439,954 (paras 1, 13-15).
Mr Quillan made payments totalling £57,498, leaving an Outstanding Balance of £382,456 (paras 17, 20). The liquidator's final account of 18 March 2019 stated no further funds were expected in respect of this balance (paras 18-19).
HMRC opened an enquiry into Mr Quillan's 2018-19 tax return and concluded, via a Closure Notice dated 9 August 2023, that the Outstanding Balance had been written off and should be charged to income tax under section 415(1) ITTOIA (para 29).
The First-tier Tribunal (FTT) held in a decision released 10 April 2025 that the loan had not been written off, relying partly on the liquidator's later correspondence stating the matter was 'not formally written off' (paras 3, 23, 60-62). HMRC appealed to the Upper Tribunal with permission granted by the FTT on 10 July 2025 (para 4).
Background
BOH Investments Ltd was wholly owned by Mr Quillan, who was its sole director (para 1). On 16 January 2017, BOH passed a resolution for voluntary winding up, and a liquidator was appointed (para 14 (Decision [14])).
The director's loan account was overdrawn by £439,954 (Decision [15]). Following correspondence, Mr Quillan offered £57,500 in settlement and made six payments totalling £57,498 between February and July 2018 (Decision [16]-[17]).
The liquidator's notice of final account dated 18 March 2019 recorded that no further funds were expected in respect of the remaining balance of £382,456 (Decision [18]-[20]). BOH was dissolved on 15 April 2020 (Decision [21]).
HMRC opened an enquiry into Mr Quillan's 2018-19 self-assessment return on 10 September 2020 (Decision [22]). Correspondence with the liquidator, Mr Rosler, followed, in which he stated the debt 'was not formally written off' and remained 'unresolved' (Decision [23], [25]). HMRC issued a Closure Notice on 9 August 2023 charging the Outstanding Balance to tax under section 415 ITTOIA (Decision [29]). Mr Quillan appealed, and following a review, HMRC upheld the Closure Notice by letter dated 23 November 2023 (Decision [30]-[31]).
Core dispute
The main issue was whether the Outstanding Balance of £382,456 owed by Mr Quillan to BOH had been 'written off' within the meaning of section 415(1) ITTOIA 2005, which charges income tax where a close company releases or writes off a debt owed by a participator in respect of a loan chargeable under section 455 Corporation Tax Act 2010 (paras 1-2, 9-10).
The second issue, arising only if the loan was found to be written off, was the timing of that write-off: whether it occurred in the 2018/19 tax year (the year covered by the Closure Notice), before that year, or after it, in the 2020/21 tax year on dissolution of BOH (paras 2, 63).
HMRC argued that the liquidator's final account of 18 March 2019, stating no further funds were expected, constituted a write-off, relying on Collins v Addies [1991] STC 445 for the distinction between a 'release' (final and conclusive) and a 'write off' (which may remain theoretically recoverable) (paras 16-27, 44-47). Mr Quillan argued that the liquidator's own characterisation that the debt was 'not formally written off' should be determinative, and proposed a third category of debt status, neither released nor written off but left 'unresolved' (paras 28-29, 34-35).
Court findings
The Upper Tribunal held that the FTT made material errors of law. First, the FTT wrongly relied on the liquidator's subsequent, ex post facto characterisation in correspondence (that the debt was 'not formally written off') rather than on the substance of the final account itself (paras 58, 61).
Secondly, the FTT erred in holding that there was a formal, prescribed process for writing off a debt owed to a company in liquidation which had not been followed; the Tribunal found no such formal process exists, and that a write-off is a matter of substance, typically an informal and unilateral act, which does not require an admission that the debt will never be recovered (paras 22-23, 60).
The Tribunal held that a debt is written off by a liquidator in a creditors' voluntary liquidation when the liquidator concludes there is no or limited recoverable value in the debt and records this in the final account communicated to members and creditors under section 106 Insolvency Act 1986 (paras 52-53, 60). The liquidator's final account dated 18 March 2019, stating that no further funds were expected in respect of the Outstanding Balance, satisfied this test (paras 51, 60-61).
The Tribunal rejected Mr Quillan's proposed third category of 'unresolved' debt status as having no basis in the legislation (para 61). It also found that accounting materials on 'write off' (including IFRS 9 guidance) were not determinative of the statutory construction question but were, in any event, not inconsistent with the Tribunal's conclusion (paras 54-55).
On timing, the Tribunal held the write-off occurred on 18 March 2019, the date of the final account, which fell within the 2018/19 tax year. It rejected Mr Quillan's submissions that the write-off occurred earlier (at the time of the Annual Progress Report of 25 January 2018, when enquiries were still ongoing) or later (on dissolution of BOH on 15 April 2020) (paras 65-67).
Outcome
The Upper Tribunal allowed HMRC's appeal, set aside the FTT's decision, and remade it, dismissing Mr Quillan's appeal against the Closure Notice for the tax year 2018/2019 (paras 5, 68-72). The Tribunal considered it disproportionate to remit the matter to the FTT given that the facts were not in dispute (para 71).
The Tribunal noted, without deciding the point, a potential anomaly whereby Mr Quillan could face a tax charge under section 415(1) ITTOIA even though the written-off debt might later be recovered against him if BOH were restored to the register and his financial circumstances improved, with no apparent relief available in such circumstances. The Tribunal considered this might merit legislative or extra-statutory consideration but did not allow it to affect its interpretation of 'writes off' (paras 73-76).
Major issues / areas of contention
- Whether the Outstanding Balance of £382,456 on a director's loan account was 'written off' within the meaning of section 415(1) ITTOIA 2005.
- Whether the liquidator's final account, rather than his subsequent correspondence, determined whether a write-off occurred.
- Whether there is a formal or prescribed process required for a liquidator to write off a debt owed to a company in liquidation.
- The distinction between a 'release' of a debt and a 'write off' of a debt, as set out in Collins v Addies [1991] STC 445.
- Whether a third category of debt status (neither released nor written off, but 'unresolved') exists for the purposes of section 415(1) ITTOIA.
- In which tax year the write-off, if any, occurred: before 2018/19, during 2018/19, or after (on dissolution in 2020/21).
- Whether accounting standards such as IFRS 9 are relevant to the statutory construction of 'writes off' in section 415(1) ITTOIA.
- A potential anomaly where a participator could be taxed on a written-off debt that is later recovered if the company is restored to the register.