Readers’ forum: Micro company

My client is a small company owned 50-50 by husband and wife who are also directors. Their son is a director but does not own any shares.

Just before the 2016 dividend tax changes the company declared dividends of £15 000 per shareholder.

There were distributable reserves to pay the dividends which were declared on personal returns. Nothing was paid to shareholders and the amounts due were taken to directors’ loan accounts. The intention was for the company to repay the directors’ loan accounts and not declare further dividends until it had paid the sums owed to the directors.

Trade has now slowed and only £6 000 been repaid leaving a balance of £24 000. The profit for 2020 was small and reserves are negligible.

The couple want to retire and hand over the business to their son. They do not need the loan account repaid. If the...