HMRC v Gary Quillan: Upper Tribunal rules director's loan was written off despite no formal liquidation process

The Upper Tribunal (Tax and Chancery Chamber) has allowed an appeal by HMRC against a First-tier Tribunal decision that a director's loan account had not been written off for the purposes of section 415 Income Tax (Trading and Other Income) Act 2005, finding instead that the outstanding balance was written off during the company's voluntary liquidation and that the tax charge fell within the 2018/19 tax year.

Handing down judgement in The Commissioners for HMRC v Gary Quillan [2026] UKUT 300 (TCC), Judge Swami Raghavan and Judge Guy Brannan set aside the First-tier Tribunal's decision of April 2025 and remade it, dismissing Mr Quillan's appeal against HMRC's closure notice.

The case concerned BOH Investments Ltd, a close company of which Mr Quillan was sole director. His director's loan account stood overdrawn at £439,954 when the company entered creditors' voluntary liquidation in January 2017. Between February and July 2018, Mr Quillan repaid £57,498 in instalments, leaving £382,456 outstanding. The liquidator's final account, dated 18 March 2019, recorded that no further funds were expected in respect of the balance, and the company was subsequently dissolved in April 2020.

When HMRC later enquired into Mr Quillan's 2018/19 tax return, the liquidator confirmed that the balance had been repaid in part but stated it had not been "formally written off". HMRC nonetheless issued a closure notice treating the £382,456 as written off and therefore taxable under section 415, relying on its own guidance that a balance no longer being pursued should be treated as written off.

The First-tier Tribunal had preferred the liquidator's characterisation, holding that because a formal process for writing off or releasing the debt existed but had deliberately not been followed, the ordinary meaning of "written off" did not apply. It considered that the theoretical possibility of the company being restored to pursue Mr Quillan in future weighed against a finding that the debt had been written off.

The Upper Tribunal disagreed, identifying two errors of law. First, the FTT had wrongly treated the liquidator's later, retrospective description of events as determinative, rather than assessing the substance of what had actually occurred. Second, there was no such thing as a prescribed formal process for writing off a debt owed to an insolvent company. Drawing on the Court of Appeal's reasoning in Collins v Addies [1992] STC 746, the tribunal confirmed that writing off a debt is ordinarily a unilateral and gratuitous act, distinct from a release, and one that does not preclude future recovery should circumstances change. The very fact that recovery remained theoretically possible was, in the tribunal's view, a hallmark of a write-off rather than evidence against one.

The tribunal held that the liquidator's final account of 18 March 2019, which recorded that no further funds were anticipated, constituted the write-off, placing the tax point firmly within the 2018/19 year of assessment. It rejected Mr Quillan's argument that the debt fell into some third, undetermined category distinct from both release and write-off.

The tribunal noted, without altering its conclusion, a possible anomaly: a taxpayer charged under section 415 following a write-off could in principle still face recovery action if the company were later restored to the register, with no obvious relief available in such circumstances. The judges suggested this might warrant legislative attention, while confirming that the point could not affect the proper construction of the statute.