Ltd company bankruptcy and impact on personal situation

benandlewis

I ran a Ltd company until March of 2011 when work dried up. I moved to regular employment while looking for new self employed work. None has been forthcoming and I remain employed.

I filed accounts for last year which shows the company owes a total of £38,000 in corporation tax. HMRC are the only creditor and also debtor owing the company about £5,000 in tax overpayment.

I do not have the means to make the payment to HMRC and the company ceased trading in March of 2011.

I am struggling to get advice about what I should do and what my personal liabilities are. I own about 30% of my own home but the house was never used as security.

My questions are:

Should I put the company into administration/bankruptcy?
As the company is Ltd what are my personal liabilities?
Is my home at risk and if so is there anything I can do to reduce this?
What will happen to my personal bank and credit cards (the company bank account is closed and the was never any credit or loans)?

Is there any risk I haven't thought of and where best do I go for advice?

silvercar

Have you given any personal guarantees?

Even if you have not offered your house as security for any loans, overdrafts or bank facilities, you may have signed a personal liability form from the bank.

dancingfairy

I would speak to Business Debtline for advice.
df

benandlewis

silvercar wrote: »

Have you given any personal guarantees?

Even if you have not offered your house as security for any loans, overdrafts or bank facilities, you may have signed a personal liability form from the bank.

I'm not aware of signing any PGs with the bank. It was a pretty straight forward process with Santander for a current and reserve account with no facilities at all (no overdraft, credit, etc)

Also current account closed since July and Reserve also requested for close at same time although caught in a computer loop that the bank are trying to close

benandlewis

dancingfairy wrote: »

I would speak to Business Debtline for advice.
df

I've been trying to get through but struggling with the limited spare time I have at work. I do intend to keep trying tho. Thanks

Pennywise

If no monies are owed to anyone else, then it's irrelevant whether you've signed personal guarantees to the bank, or anyone else, other than HMRC.

For that kind of money, HMRC will probably eventually appoint the official receiver to wind up the company and recover as much as possible towards the debt. The question asked by the OR will be why the debt arose (i.e. where the £38k went to). There are three main potential reasons:-

A. A major customer didn't pay or the company incurred trading debts with no income, i.e. rent, overheads etc.

B. You took out excess dividends, i.e. dividends higher than the amount legally available to be withdrawn.

C. You drew out the money in the form of a directors loan.

If A, then the OR will probably just shut down the company and you'll hear no more. If B or C, then the OR will try to recover the money from you that you wrongly took, and could well pursue you to personal bankruptcy for it.

So, for anyone to give you advice, we need to know what happened to the £38k - it didn't just disappear. You either took too much as dividends or director loans, or a customer didn't pay you it, or the company spent it on running costs. Which is it?

Also, would help to know what taxes are owed, i.e. is it VAT, staff PAYE or corporation tax?

In the meantime, I don't think there's anything you can do yourself. You can't apply for informal striking off as the company is insolvent, so you'd need to personally appoint a liquidator (cost approx £5k) to wind it up, which presumably you can't afford. It will therefore continue in existence until someone else applies for winding up, and seeing as HMRC are the only creditor, it'll have to be them eventually.

benandlewis

Pennywise wrote: »

If no monies are owed to anyone else, then it's irrelevant whether you've signed personal guarantees to the bank, or anyone else, other than HMRC.

For that kind of money, HMRC will probably eventually appoint the official receiver to wind up the company and recover as much as possible towards the debt. The question asked by the OR will be why the debt arose (i.e. where the £38k went to). There are three main potential reasons:-

A. A major customer didn't pay or the company incurred trading debts with no income, i.e. rent, overheads etc.

B. You took out excess dividends, i.e. dividends higher than the amount legally available to be withdrawn.

C. You drew out the money in the form of a directors loan.

If A, then the OR will probably just shut down the company and you'll hear no more. If B or C, then the OR will try to recover the money from you that you wrongly took, and could well pursue you to personal bankruptcy for it.

So, for anyone to give you advice, we need to know what happened to the £38k - it didn't just disappear. You either took too much as dividends or director loans, or a customer didn't pay you it, or the company spent it on running costs. Which is it?

Also, would help to know what taxes are owed, i.e. is it VAT, staff PAYE or corporation tax?

In the meantime, I don't think there's anything you can do yourself. You can't apply for informal striking off as the company is insolvent, so you'd need to personally appoint a liquidator (cost approx £5k) to wind it up, which presumably you can't afford. It will therefore continue in existence until someone else applies for winding up, and seeing as HMRC are the only creditor, it'll have to be them eventually.

Thanks for this.

The consulting contract I had came to an end unexpectedly and abruptly. This was the only income source at the time. I paid myself in dividends and a small salary. Continuing business would have enabled me to fund the Corporation Tax due. However with no additional work forthcoming this hasn't been possible. This is therefore closest to your scenario B.

The only outstanding debt is the £38,000 Corporation Tax. All Vat and all other tax is fully paid up and there are no other creditors.

pleasedelete

benandlewis wrote: »

Thanks for this.

The consulting contract I had came to an end unexpectedly and abruptly. This was the only income source at the time. I paid myself in dividends and a small salary. Continuing business would have enabled me to fund the Corporation Tax due. However with no additional work forthcoming this hasn't been possible. This is therefore closest to your scenario B.

The only outstanding debt is the £38,000 Corporation Tax. All Vat and all other tax is fully paid up and there are no other creditors.

My qiestion with that then is that you were not at the time the contract ended (if the business was reliant on just 1 contract) really a contractor working through alimited company but should have been an employee. Are you sure you were IR35 fire proof- doesn't sound like it. I don't know if they then chase for lost income tax rather than corporation- and wether that would then lead to them looking at expenses etc etc

Pennywise

benandlewis wrote: »

Thanks for this.

The consulting contract I had came to an end unexpectedly and abruptly. This was the only income source at the time. I paid myself in dividends and a small salary. Continuing business would have enabled me to fund the Corporation Tax due. However with no additional work forthcoming this hasn't been possible. This is therefore closest to your scenario B.

The only outstanding debt is the £38,000 Corporation Tax. All Vat and all other tax is fully paid up and there are no other creditors.

OK, it seems that you used the corporation tax money to pay yourself illegal dividends. I'd expect the official receiver to try to recover the illegally paid dividends, i.e. all dividends paid over and above the post-tax reserves of the company. The OR may well go for personal bankruptcy to recover money you owe to your company, which in turn is owed to HMRC.

Are you sure about £38k being corporation tax? That's the CT due on profits of £181k - did you really make (and spend) that kind of money in just a year? Or does the £38k relate to more than one accounting year, i.e. were there arrears of CT from earlier years as well?

askabigail

I couldn't agree more

Presumably:-

1. HMRC will oppose any winding up order
2. They will treat the dividends as PAYE and as for the tax and NI

What was declared on the Tax Returns for both the company and yourself?


Where the accounts ever audited?

Pennywise wrote: »

OK, it seems that you used the corporation tax money to pay yourself illegal dividends. I'd expect the official receiver to try to recover the illegally paid dividends, i.e. all dividends paid over and above the post-tax reserves of the company. The OR may well go for personal bankruptcy to recover money you owe to your company, which in turn is owed to HMRC.

Are you sure about £38k being corporation tax? That's the CT due on profits of £181k - did you really make (and spend) that kind of money in just a year? Or does the £38k relate to more than one accounting year, i.e. were there arrears of CT from earlier years as well?

benandlewis

Pennywise wrote: »

OK, it seems that you used the corporation tax money to pay yourself illegal dividends. I'd expect the official receiver to try to recover the illegally paid dividends, i.e. all dividends paid over and above the post-tax reserves of the company. The OR may well go for personal bankruptcy to recover money you owe to your company, which in turn is owed to HMRC.

Are you sure about £38k being corporation tax? That's the CT due on profits of £181k - did you really make (and spend) that kind of money in just a year? Or does the £38k relate to more than one accounting year, i.e. were there arrears of CT from earlier years as well?

Thanks for all the useful advice

I'll need to go back and look at my figures again tonight and will update onceive double checked. Turnover never topped £181k so that seems high. I was working off the bill from HMRC but need to ensure this tallies with the submitted accounts.