The Commissioners for HMRC v Gary Quillan

For the purposes of section 415(1) of the Income Tax (Trading and Other Income) Act 2005, a debt is written off in a creditors’ voluntary liquidation when the liquidator concludes that it has no recoverable value and records that conclusion in the final account. This is a matter of substance, not form: no prescribed insolvency process is required, and a write-off does not extinguish the debt at law. The possibility of later recovery, including after restoration of the company, does not prevent a write-off. The operative time is when the liquidator reports that conclusion; an earlier progress report that leaves recovery enquiries open does not suffice.

BOH Investments Ltd (BOH), a close company wholly owned by Gary Quillan, was placed into creditors’ voluntary liquidation. Mr Quillan owed BOH £439,954 on his director’s loan account. After he paid £57,498, the liquidator’s final account of 18 March 2019 stated that no further funds were expected from the outstanding balance.

HMRC assessed Mr Quillan for the balance under section 415(1) of the Income Tax (Trading and Other Income) Act 2005 for 2018/19. The First-tier Tribunal held that the debt had not been written off and did not decide when any write-off occurred: [2025] UKFTT 00421 (TC). HMRC appealed. The issues were whether the balance had been written off during the liquidation and, if so, whether the write-off occurred in 2018/19.

The Upper Tribunal allowed HMRC’s appeal, set aside the First-tier Tribunal’s decision and remade it by dismissing Mr Quillan’s appeal against the 2018/19 closure notice.

1. Section 415(1) of the Income Tax (Trading and Other Income) Act 2005 must be read purposively and with section 455 of the Corporation Tax Act 2010. Section 455 imposes a temporary corporation tax charge on a close company making a participator loan; a later write-off or release engages the income tax charge on the participator. The Upper Tribunal relied on Collins v Addies [1991] STC 445 for the distinction between a release and a unilateral write-off, which may leave a debt legally recoverable.

2. In a creditors’ voluntary liquidation, a debt is written off when the liquidator concludes there is no recoverable value in it and records that conclusion in the final account. A write-off is a matter of substance, not form; there is no formal insolvency procedure for writing off a debt. The liquidator’s later description of the matter as unresolved was not determinative. The possibility that BOH might be restored and the debt pursued if Mr Quillan’s circumstances improved did not prevent a write-off.

   The final account prepared under section 106 of the Insolvency Act 1986 stated that no further funds were expected. That recorded the liquidator’s conclusion that the balance was not recoverable and was communicated to members and creditors. The accounting materials considered after the hearing did not alter the statutory construction; they did not require recovery to be impossible or the debt never to be recovered.

3. The write-off occurred on 18 March 2019, when the final account was issued. The January 2018 progress report left the liquidator’s enquiries open, so the debt had not then been written off. Dissolution in April 2020 was not the operative date because the final account had already recorded the write-off.

4. The Tribunal observed that a tax charge may arise even if the debt is later recovered, with no apparent relief from the charge. It considered that possible anomaly did not change the proper construction and might merit legislative amendment or an extra-statutory concession. In taking that approach, it adopted the approach noted by the Court of Appeal in Collins v Addies [1992] STC 746.

HMRC’s appeal was allowed, the First-tier Tribunal’s decision was set aside and remade, and Mr Quillan’s appeal against the closure notice was dismissed. Any costs application was to be made and served within one month under rule 10 of the Tribunal Procedure (Upper Tribunal) Rules 2008.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal allowed. The First-tier Tribunal’s decision was set aside and remade, dismissing Mr Quillan’s appeal against the closure notice.
• First-tier Tribunal (Tax Chamber): Held that the loan had not been written off and did not decide the timing issue: [2025] UKFTT 00421 (TC).