The Upper Tribunal's ruling in HMRC v Gary Quillan clarifies that director's loan write-offs are determined by substance over form, with practical implications for liquidation and restructuring scenarios.
In a significant decision released on 6 August 2026, the Upper Tribunal in HMRC v Gary Quillan [2026] UKUT 300 (TCC) allowed HMRC's appeal and ruled that an outstanding director's loan balance of £382,456 had been written off for tax purposes in the 2018/19 tax year. The ruling clarifies important principles for practitioners advising on director's loans and their treatment under corporation tax rules.
The Case Background
Gary Quillan was the sole director and shareholder of BOH Investments Ltd. On 16 January 2017, BOH passed a resolution to enter voluntary winding up, at which point Mr Quillan's director's loan account was overdrawn by £439,954.
Following correspondence and the threat of legal proceedings, Mr Quillan offered £57,500 towards the debt, and between February and July 2018, six payments of £9,583 were made, totalling £57,498.
This left an outstanding balance of £382,456, and the liquidator's final account dated 18 March 2019 recorded that no further funds were expected in relation to the director's loan account.
Key Principle: Substance Over Form
The critical issue before the tribunals was whether the director's loan had been "written off" for section 415 purposes, triggering a taxable credit to the borrower. The decision is particularly important because the First-tier Tribunal had reached the opposite conclusion in April 2025.
The Upper Tribunal found that, for section 415 purposes, whether a loan has been written off depends on the substance of what happened to the debt rather than simply on the existence of a formal document expressly recording a write-off.
The Upper Tribunal ultimately treated the liquidator's final account as the crucial evidence establishing the write-off.
What This Means for Your Practice
This ruling has clear practical implications. Directors and company owners involved in company failures, voluntary arrangements, or liquidations should understand that HMRC will look beyond formal write-off documents to the underlying commercial reality. The fact that a debt has become unrecoverable—as evidenced by a liquidator's statement that no further funds are expected—may trigger an assessable credit under section 415, Corporation Tax Act 2010, even without explicit written confirmation of write-off.
For practitioners, this underscores the importance of:
- Careful documentation in liquidation scenarios, advising clients on the timing and substance of when a debt becomes unrecoverable;
- Close attention to third-party evidence (liquidators' accounts, correspondence) that may establish the practical write-off, independent of formal resolutions;
- Timely engagement with clients facing director's loan issues, to ensure tax treatment is properly managed in the year the debt becomes genuinely unrecoverable.
The decision also reinforces HMRC's stronger position where company failures or restructurings occur. Practitioners should review director's loan accounts in their client bases and consider whether any outstanding balances have effectively been abandoned, with corresponding section 415 charges that may not yet have been assessed.