VAT and DLA

peatling

Long story short. My partner and I are directors of a limited company. We bought some land 10 years ago with a bank loan, the sale was subject to VAT. We have spent a lot of money on planning etc but the bank issued proceedings against us a couple of years ago and have finally sold the land. After they have taken their money there is £30K surplus. We owe £10K VAT on the sale but our DLAs stand at £19K each.

The question is can we legitimately pay our DLA and liquidate the company without paying the VAT?

Thanks in anticipation.

Savvy_Sue

I believe HMRC will usually object to a company being liquidated if they're still owed money, but better informed people will be along shortly, I'm sure ...

However I'd question the use of the word 'legitimately' in any sentence which suggests that you'd like to avoid paying any kind of tax bill. If it's owed, it needs paying, surely?

antrobus

peatling wrote: »

Long story short. My partner and I are directors of a limited company. We bought some land 10 years ago with a bank loan, the sale was subject to VAT. We have spent a lot of money on planning etc but the bank issued proceedings against us a couple of years ago and have finally sold the land. After they have taken their money there is £30K surplus. We owe £10K VAT on the sale but our DLAs stand at £19K each.

The question is can we legitimately pay our DLA and liquidate the company without paying the VAT?

Thanks in anticipation.

I am assuming here that DLA equals Director's Loan Account. And thus you are asking whether or not you can personally withdraw the £30k left in the company, leaving nothing left for HMRC.

No, you cannot "legitimately" do that. It's known as 'unfair preference', see s239 Insolvency Act 1986. A court will order you to repay the £30,000. You may well be prosecuted for fraud see s207 Insolvency Act 1986.

You have two choices. Either you pay HMRC its £10k, and keep the £20k for yourself, and then kill the company. Or you go for a CVA where the £30k will be shared out proportionally between the company's creditors; you £38k, HMRC £10k. Of course, option B will involve paying some IP some fees, so in practice there probably won't be much difference.

peatling

Savvy_Sue wrote: »

I believe HMRC will usually object to a company being liquidated if they're still owed money, but better informed people will be along shortly, I'm sure ...

However I'd question the use of the word 'legitimately' in any sentence which suggests that you'd like to avoid paying any kind of tax bill. If it's owed, it needs paying, surely?

Thanks. I used the word "legitimately" precisely because I do not want to do anything illegal! Naturally I would rather have the money owed to me rather than pay C&E!

peatling

Thanks for the info Antrobus. I will check it out further.

lincroft1710

antrobus wrote: »

I am assuming here that DLA equals Director's Loan Account.

I was wondering why someone who was receiving Disability Living Allowance would have a query about VAT

motorguy

antrobus wrote: »

I am assuming here that DLA equals Director's Loan Account. And thus you are asking whether or not you can personally withdraw the £30k left in the company, leaving nothing left for HMRC.

No, you cannot "legitimately" do that. It's known as 'unfair preference', see s239 Insolvency Act 1986. A court will order you to repay the £30,000. You may well be prosecuted for fraud see s207 Insolvency Act 1986.

You have two choices. Either you pay HMRC its £10k, and keep the £20k for yourself, and then kill the company. Or you go for a CVA where the £30k will be shared out proportionally between the company's creditors; you £38k, HMRC £10k. Of course, option B will involve paying some IP some fees, so in practice there probably won't be much difference.

There may also be tax owing on the Directors Loans.

Its quite irresponsible of you not to have stated that. Are you deliberately trying to mislead the O/P?

antrobus

motorguy wrote: »

There may also be tax owing on the Directors Loans.

Its quite irresponsible of you not to have stated that. Are you deliberately trying to mislead the O/P?

No, because the Directors Loans are in credit; the company owes the directors the money. (Obviously, otherwise the OP wouldn't be asking a question about the company repaying the balances.)

Tax is only due on where the director owes the company money.

Don't you feel a bit foolish now that you know that?

motorguy

antrobus wrote: »

Don't you feel a bit foolish now that you know that?

No not in the least. Its quite irritating though when someone derails a thread with something irrelevant though isnt it?

peatling

Well circumstances have just changed. The bank has asked me for my VAT number so that they can pay the VAT and send us the balance!

Two questions

1. How can a third party (the bank) deal with our VAT affairs without knowing our circumstances? I still submit quarterly returns on behalf of the company
2. Doesn't this now give C&E "unfair preference"??!!

unforeseen

It can be argued that the VAT money never belonged to the company. It only collected it on behalf of HMRC, and was then allowed to offset their VAT liabilities against it before passing it on to HMRC