Limited Company Closure (DS01) - Corporation Tax still owed

hodd

As I say, we’ll see. There must be some grounds for what the Business Debtline and my accountant have said. In my case, it’s poor planning and management, but others may be acting fraudulently. In the case of the Business Debtline, the volunteer helper only had the brief information I gave him in one short phone call so I guess he had to explain all the possible outcomes.

This way of doing things, i.e. running up debts (unpaid corporation tax) and then striking off the company does seem open to abuse.

Marcon

phill99 wrote: »

They are talking sh$te.


HMRC have to prove that your conduct was inappropriate.

Which is often not as difficult as the uninitiated fondly believe, especially where directors have paid themselves remuneration the business can't afford. Pension contributions and dividends to name but two which tend to raise eyebrows...and aren't you rather ignoring the fact that companies can normally only be struck off once all debts are settled? OP, any sign of an objection being lodged by HMRC?

hodd

Marcon wrote: »

OP, any sign of an objection being lodged by HMRC?

I’ve only just completed the DS01.

The Business Debtline’s thinking is that HMRC might not have the resource to chase such a relatively small debt. Again, we’ll see, but I’m not planning to spend the £8k anywhere else just yet.

Pennywise

The question is what happened to the £8k? Did you draw out too much (i.e. dividends that weren't justified by post tax profits)? If so, that could be regarded as an overdrawn directors loan account, which does have tax implications on you personally, and is, effectively an asset of the company (a debt owed to it), so could feasibly be demanded by the official receiver. Just because HMRC may not notice what is going on, doesn't make it morally right for you to keep their money.

hodd

We’ll see, shall we? I stopped trading very abruptly and hadn’t planned ahead. I’ve already said above that’s my bad. I will be in a position to pay the tax owed if need be, but HMRC will not entertain a payment plan right now.

If you’ve experience of this, please tell.

Middlestitch

hodd wrote: »

We’ll see, shall we? I stopped trading very abruptly and hadn’t planned ahead. I’ve already said above that’s my bad. I will be in a position to pay the tax owed if need be, but HMRC will not entertain a payment plan right now.

If you’ve experience of this, please tell.

You're not the first person to do this and you certainly won't be the last!



How did you pay yourself from this company (as others have asked)? Salary, dividends, pension contributions, benefits in kind, a director's loan...? It can make a big difference to what happens next.



If you were trading (and in this context, trading could simply mean paying yourself funds from the company) while you knew or should have known your company was insolvent, striking off isn't the end of the matter, because you have become personally liable for the company's debts.



Much depends on whether HMRC decide to go after you for their pound of flesh - and my experience of dealing with clients in this position is that it can be more than somewhat arbitrary in terms of who is pursued and when that pursuit happens. In the absence of a crystal ball, nobody can offer you certainty either way - or even give you an idea of the odds, although with all the political turmoil going on right now, the odds are probably more in your favour than if we were in a peaceful post-Brexit world(!).

hodd

The limited company is around five years old, and things were normally OK and paid on time. I paid myself a small salary, took dividends and paid into a pension.

The main reason things went awry this time was I stopped trading rather abruptly to take up a paid job. After that time, no trading at all took place. However, I’d withdrawn a lot in dividends prior to that which is where the money went.

As I say, I’ll have the £8K by mid to early December, and if HMRC object to the strike off, I’ll most likely pay up.

Marcon

hodd wrote: »

However, I’d withdrawn a lot in dividends prior to that which is where the money went.

As I say, I’ll have the £8K by mid to early December, and if HMRC object to the strike off, I’ll most likely pay up.

If you took dividends when there were no profits to support these, then yes, it will leave you in a pickle if HMRC register an objection - there's no valid defence for a director doing that. Paying up looks a sensible idea in that situation.

JohnDorian

If you ended the business abruptly but had taken dividends up to that point are you sure you had distributable reserves?

A few years ago when I was in a small practice there was a client in the same situation as you. As he ended business suddenly, he never had the distributable reserves at that point to cover the dividends he had taken. So HMRC deemed those to be a loan and wanted it repaid to the company along with the payment of corporation tax. It got very serious due to the dividend element was being used by HMRC to claim the client had not fulfilled his fiduciary duty as a director.

The partner thought it would be ok as HMRC we’re pushing it with the Companies Act for an owner managed business with no employees but he freaked out and settled with a final payroll run to clear the overdrawn directors account and paid over the tax.

Hopefully that is not the case for you but if it is, I would be inclined to suggest you just pay the tax so that the Company can end it’s life.

happyandcontented

Can I sneak in a question here, please?

If you have a Ltd Company as a contractor and were initially outside IR 35, but then the terms of the contract changed and you were inside IR 35 and paying tax/NI at source, but the payments were still going into the business account, would Corporation tax still be payable?