HMRC v Quillan [2026] UKUT 300 (TCC), published 6 August 2026, is a board-level directors’ loan case, not a niche insolvency footnote. The Upper Tribunal allowed HMRC’s appeal and held that an overdrawn director’s loan account (DLA) of a close company in creditors’ voluntary liquidation was “written off” for the purposes of section 415 of the Income Tax (Trading and Other Income) Act 2005 in 2018/19 — when the liquidator concluded there was no recoverable value and reported that in the final account. There was no formal deed of release. There was no board minute saying “write off”. Substance still triggered personal income tax on the borrower.
The First-tier Tribunal had gone the other way in Quillan [2025] UKFTT 421 (TC), treating the absence of a formal release as decisive. The UT (Judges Raghavan and Brannan) reversed that. Commercial reality — the liquidator’s final-report conclusion that the debt had no recoverable value for creditors — was enough. Primary sources and practitioner notes: the full UT decision PDF on GOV.UK, Pump Tax’s case note (Charles Bradley acted for HMRC), and the August 2026 round-up from Saffery / S&W.
What section 415 actually does
Close companies that extract cash as loans to participators already sit under the s455 CTA 2010 regime at company level. When that loan is later released or written off, s415 ITTOIA 2005 charges the individual on the amount released or written off as income. HMRC’s operational line is in the Company Taxation Manual: see CTM61655 (release or writing-off), CTM61560 (insolvent liquidations and dissolutions), and CTM61510 (the s455 charge itself). For write-offs on or after 6 April 2016 the taxable amount is the amount written off, without the old dividend ordinary-rate gross-up theatre. It is savings and investment income on the individual’s Self Assessment return for the year of write-off.
If the participator is also an employee (or a relative of one), employment-income write-off rules in ITEPA 2003 ss188–189 can also be in play — but amounts charged under s415 are not double-charged under those specific employment provisions. Class 1 NIC is a separate risk where the write-off is remuneration or profit derived from employment: HMRC points to CTM61660 and Stewart Fraser Ltd. Company-side, s458 CTA 2010 relief can unwind s455 tax once the loan is repaid, released or written off — which is exactly why liquidators and HMRC care about the characterisation.
What the Upper Tribunal actually decided
Mr Gary Quillan was sole director of BOH Investments Ltd, a close company that entered creditors’ voluntary liquidation in 2017. His DLA was overdrawn by around £440,000 at the start of the liquidation. Some repayments were made. A material balance remained when the liquidator delivered the final account and the company was dissolved. The liquidator’s final report treated the debt as unresolved and not formally written off, while concluding there was no recoverable value in it for creditors.
HMRC assessed the outstanding balance as written off in 2018/19 under s415 — figures reported in practitioner summaries put the deemed income around £382,456 and tax around £145,000. The FTT preferred form: no formal release, remote possibility of restoration and later pursuit, therefore no write-off. The UT allowed HMRC’s appeal. Key holdings, on the published headnote and firm summaries:
- “Writes off” is broader than a formal legal release. Earlier case law on predecessor provisions supported a commercial reading. A formal deed is sufficient but not necessary.
- Timing locks to the liquidator’s final account process. The write-off occurred in 2018/19 when the liquidator determined there was no recoverable value and reported that conclusion in the final report — not at some later metaphysical moment of corporate dissolution folklore.
- Anti-avoidance purpose matters. Section 415 is there to stop untaxed extractions remaining untaxed because nobody signed a release. Remote theoretical recovery rights do not defeat a plain commercial write-off.
- HMRC’s CTM61560 stance is now backed at UT level. That manual already said that where, on a balanced view of the facts, the company or liquidator is not intending to pursue the debt — including where collection attempts have been abandoned — officers should argue write-off and s415. Quillan makes that harder to dismiss as aggressive HMRC gloss.
Why CFOs and PE finance leads should care
The same mechanics hit PE portfolio clean-ups, founder leaver settlements, distressed holdcos, SPV wind-downs, and any close company where cash left as a DLA rather than salary or dividend. Three structural points:
- Insolvency does not wash the personal tax slate. Company insolvency can crystallise s415 on the individual at the worst possible moment — when the company can no longer fund a soft landing and the director may already be under insolvency pressure.
- “We never formally wrote it off” is a weak control. After Quillan, final liquidator reporting language, settlement deeds in “full and final” form, and any evidence that pursuit has been abandoned are live tax-event triggers. Silence is not a safe harbour.
- s455 / s415 / NIC / employment income stack. Finance leaders who only track the company s455 balance sheet line miss the personal SA, potential Class 1 NIC, and D&O / leaver indemnity consequences. Treat DLA ageing as a multi-tax-risk register item, not a bookkeeping convenience.
For groups and PE houses, diligence on entry and exit should include DLA ageing, s455 paid/unpaid, liquidator correspondence on recoverability, and any “full and final” settlement wording with former directors. For ongoing portfolio companies, DLA policy belongs in the same governance bucket as related-party transactions and dividend capacity.
The control stack to lock this quarter
- DLA register — entity, participator, opening balance, movements, interest (if any), s455 status, repayment plan, and target clearance date. Board-visible quarterly.
- Extraction policy — prefer salary/bonus (with PAYE/NIC) or lawful dividends within distributable reserves over open-ended DLAs. If a temporary loan is needed, document commercial terms, security where appropriate, and a hard repayment date.
- Insolvency playbook — before CVL or MVL, model personal s415 exposure on any residual DLA. Engage tax counsel with the insolvency practitioner early. Do not assume “unresolved” language in a final report keeps s415 off the table.
- Settlement wording — “full and final settlement”, waivers, and set-offs against distributions can amount to release or write-off. Read CTM61560’s examples before signing. Align personal tax timing with any company s458 claim.
- Self Assessment hygiene — when a write-off is accepted or inevitable, put the income on the correct year’s return. Discovery assessments and late reporting multiply cost. Cross-check employment-income and NIC angles under CTM61655 / CTM61660.
- PE / leaver deals — leaver loan waivers, sweet equity restructures, and holdco DLA clearances need tax sign-off. Earn-out and MIP papers should not quietly recreate participator-loan risk in close companies.
- Audit committee pack — one slide: aged DLAs, s455 cash at risk, projected s415 if written off, and who owns remediation. If external audit already flags related-party loans, treat that as a tax trigger, not only an accounting note.
Related architecture still in force
Quillan sits inside a wider HMRC push on extractions. Company s455 remains at 33.75% of the loan for most close-company advances; s458 relief on repayment, release or write-off is process-driven. The money-lending ordinary-course exemption is narrow — see CTM61530. A single “commercial” loan to a participator does not get you out. August 2026’s Employer Bulletin also flags consultations on lower-value tax debt recovery (closes 28 August 2026) and aligning NICs recovery limits with Income Tax — same direction of travel: less room for unstructured balances to drift. Broader framing: ICAEW’s Taxline overview and ACCA on written-off directors’ loans.
What to do this week
If you only do five things after Quillan:
- Export every UK close-company DLA over £10k and flag any entity in distress, pre-insolvency, or with no documented repayment plan.
- For any live liquidation or dissolution, obtain the liquidator’s latest report language on DLA recoverability and run a s415 timing memo before the final account is filed.
- Confirm whether s455 tax is paid, unpaid, or reclaimable under s458 for each aged balance — company cash and personal tax are linked events.
- Brief founders and PE deal teams that “not formally written off” is no longer a reliable personal-tax defence once a liquidator has commercially abandoned recovery.
- Put DLA clearance on the next audit committee agenda with owners and dates, not a narrative that “we’ll tidy it at year-end”.
Limited liability and insolvency process protect the company’s remaining assets under a statutory waterfall. They do not automatically convert an unpaid participator loan into tax-free cash in the director’s hands. After Quillan, the Upper Tribunal has said clearly that commercial write-off — including through a liquidator’s final recoverability conclusion — can crystallise s415. Manage DLAs as extractive tax events from day one, or pay for them later as personal income when the company is least able to help.
This article is general information for finance leaders, not advice on any person’s tax affairs. Always take advice on specific facts. Primary judgment: HMRC v Quillan [2026] UKUT 300 (TCC).