Connected party loans are a problem area especially if the loan is impaired (ie the borrower may not be able to repay the debt)
Individual Loans written-off
If an individual makes a loan to a company and this is subsequently written-off, the company will have a non-trading loan relationship credit equal to the amount written off.
If the loan was made to an unquoted trading company, the individual will crystalise a capital loss equal to the amount of the loan written off. This will be available to set off against capital gains arising in the year of write-off or in subsequent years.ACCA
The situation, however, becomes more complicated where the parties are connected. The general rule is that where the debtor and creditor in a loan relationship are connected in any part of an accounting period and the whole or part of a loan is written off, then this…
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Business Accountant 