The Upper Tribunal has just handed HMRC a clean win on director’s loan accounts in liquidation. In The Commissioners for HMRC v Gary Quillan 2026] UKUT 300 (TCC), released 6 August 2026, Judges Swami Raghavan and Guy Brannan allowed HMRC’s appeal, set aside the First-tier Tribunal, and held that an unpaid overdrawn DLA of £382,456 was written off for [section 415(1) ITTOIA 2005 when the liquidator issued the final account — not when the company was later dissolved, and not only if someone signed a formal release.
If you are a CFO, PE portfolio finance lead, restructuring adviser or board member sitting near close-company exits, MBO unwind, or distressed DLA clean-up, read this before anyone tells you “the liquidator never formally wrote it off, so there is no s.415 charge.” The UT has closed that door.
The facts that actually mattered
Mr Quillan was sole director and owner of BOH Investments Ltd. On 16 January 2017 the company entered creditors’ voluntary liquidation. The DLA stood at £439,954 overdrawn.
The liquidator chased. Mr Quillan paid £57,498 in instalments between February and July 2018 under a £57,500 settlement offer. The liquidator’s final account dated 18 March 2019 recorded the payments and stated that no further funds were expected into the liquidation in respect of the DLA. The unpaid balance was £382,456. BOH was dissolved on 15 April 2020.
HMRC opened an enquiry into 2018/19 and closed it on the basis that the balance had been written off in that year, bringing a charge under s.415 ITTOIA. The FTT had found for the taxpayer: no write-off. HMRC appealed. The UT allowed the appeal and remade the decision against Mr Quillan. Full judgment: caselaw.nationalarchives.gov.uk/ukut/tcc/2026/300.
Why s.415 and s.455 sit together
This is not a technical side-show. The architecture is deliberate:
- When a close company lends to a participator, section 455 CTA 2010 imposes a temporary corporation tax charge on the company.
- If the loan is later repaid, the company can reclaim the s.455 tax under section 458 CTA 2010.
- If the loan is later released or written off, the participator is charged to income tax under s.415 ITTOIA — and the company gets s.458 relief as the temporary CT charge falls away.
The policy point the UT restated from Collins v Addies 1992] STC 746 is simple: company value has left the corporate envelope and stuck with the participator. Without s.415, that value walks out untaxed as income. HMRC’s own manual at [CTM61560 already said that where the liquidator is no longer pursuing the balance, officers should argue write-off even without a formal release. The UT has now put appellate authority under that approach.
Related HMRC pages every finance team should have bookmarked: CTM61655 (release or writing-off) and the wider loans to participators chapter.
What the UT actually decided
Three holdings matter for CFOs.
1. “Writes off” is substance, not form.
There is no statutory definition. The UT held a write-off is usually a unilateral, often gratuitous act. It does not need a deed, consideration, or a formal process the liquidator “failed to follow.” Recording in the final account that the balance will not be recovered, and winding the company up on that basis, is enough.
2. Liquidator correspondence after the event does not rewrite history.
The liquidator later told HMRC the DLA “was not formally written off” and remained “unresolved,” keeping open the theoretical possibility of restoration and recovery if the director’s fortunes improved. The UT treated that as descriptive of a write-off that leaves legal rights theoretically alive, not as proof there was never a write-off. Ex post characterisation by the IP is not determinative.
3. Timing is the final account, not dissolution.
The operative moment was 18 March 2019 — the final account. Not the 2018 progress report (still “continuing enquiries”). Not dissolution on 15 April 2020. That puts the charge squarely in 2018/19, the year of HMRC’s closure notice.
The FTT’s errors, in the UT’s view: treating future recoverability as pointing away from write-off; inventing a required “formal process”; and giving too much weight to the liquidator’s later labels.
The anomaly the judges flagged — and why boards still cannot ignore it
In closing comments the UT raised a point counsel could not comfort: a s.415 charge can crystallise on write-off, yet if the company is later restored and the debt enforced, there appears to be no relieving provision for the tax already charged. They called it an anomaly that may merit legislation or an extra-statutory concession — but said it does not change the construction of “writes off.”
That is a board-level risk note, not a free pass. Do not model “we’ll take the s.415 hit and sort it later if the IP comes back.” Model the charge as real cash and income-tax exposure in the year the final account lands.
CFO controls cut — what to lock this week
Treat every close-company insolvency, solvent wind-down, or DLA compromise as a tax event calendar, not just an insolvency process.
Before liquidation or MVL:
- Schedule every overdrawn DLA / participator loan across the group (including associates and partnership loans under the post-20 March 2013 rules).
- Separate release (formal discharge — deed/consideration) from write-off (substance: stop pursuing / final account language).
- Model s.455 CT already paid or payable, s.458 reclaim timing, and the participator’s s.415 income tax (plus Class 1 NIC where CTM61660 applies on employment-related facts).
- Do not assume “partial settlement + silence” is tax-neutral. Partial payment that leaves a balance the IP will not chase is exactly the Quillan pattern.
During the insolvency:
- Read every progress report and the final account as potential s.415 trigger documents.
- Challenge soft language early: “no further funds expected,” “not commercially recoverable,” “matter closed for practical purposes.”
- If the commercial deal is a true full-and-final compromise, document it as such and tax-model the released balance in the same tax year.
- Align personal tax returns of directors/participators with the year of the final account — not the year of dissolution, and not “whenever the IP replies to HMRC.”
On PE / portfolio exits and distressed holds:
- DD every target with historical close-company status and unpaid DLAs into dissolved cos.
- In SPA warranties, ask specifically for s.455/s.415 positions, liquidator final accounts, and any HMRC closure notices on write-offs.
- For management rollovers and sweet equity, stop DLA leakage before completion; post-deal liquidation of residual Newcos is a classic trap.
- If you are funding a liquidator to pursue DLAs, keep that instruction live and documented — Quillan turns on the IP’s practical decision to stop.
Systems and audit committee:
- Map DLA balances in the consolidation pack monthly, not only at year-end.
- Flag any entity entering CVL/MVL on the tax risk register with a dedicated s.415 workstream.
- Keep the paper trail that shows whether recovery was still being pursued at each report date — timing is now appellate law.
How this sits against other live 2026 noise
Do not confuse this with yesterday’s VAT agency fight in Tapi Carpets Ltd v HMRC 2026] UKFTT 1128 (TC) (fitting fees; principal vs agent — different stack entirely: [judgment). And do not let the Pillar 2 filing window distract the board from domestic close-company hygiene: HMRC’s Pillar 2 reporting guidance and payment deadlines are multinational compliance; Quillan is the UK private-company DLA problem that still sits on most mid-market balance sheets.
For statute text and insolvency process context, keep open:
- s.415 ITTOIA 2005
- s.455 CTA 2010
- s.458 CTA 2010
- Insolvency Act 1986 s.106 (final account prior to dissolution)
- HMRC CTM61560 and CTM61655
- Find Case Law judgment: HMRC v Quillan [2026] UKUT 300 (TCC)
Bottom line
Quillan is not about aggressive planning. It is about ordinary overdrawn DLAs meeting an ordinary CVL. The UT has told the market three things CFOs can act on today:
1. Write-off is practical finality recorded to members and creditors — not a magic form of words in a deed.
2. The tax year is the final account year — dissolution is usually too late as the timing anchor.
3. “Still theoretically recoverable on restoration” is consistent with write-off, not a defence against it.
If you have a live liquidation, a planned MVL, or a portfolio company with a fat DLA and a tired IP file, pull the final account language this week and tax-model s.415 in the right year. Hoping the liquidator’s later email to HMRC will keep the charge off the director’s SA is no longer a strategy the Upper Tribunal will entertain.