Limited Company Closure (DS01) - Corporation Tax still owed

JohnDorian

If you have a PAYE or Umbrella company arrangement then that has nothing whatsoever to do with your company so corporation tax is not applicable. If you have continued to use your company’s account to receive your salary then that is accounted for as a directors loan to the company and you can draw down on it as you wish.

Probably worth just having the salary paid to your personal account to save on admin for your company.

hodd

JohnDorian wrote: »

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.

Thanks. Clearly I didn’t have distributable reserves. We’ll wait and see what happens. I’m not making excuses, but HMRC are not particularly approachable for the likes of me. I’d have been happy to call them, explain the situation and offer to pay the debt over, say, six months. But for the reasons mentioned earlier in the thread, that would be rejected, and the Business Debtline explained my best option was the strike off route.

happyandcontented

JohnDorian wrote: »

If you have a PAYE or Umbrella company arrangement then that has nothing whatsoever to do with your company so corporation tax is not applicable. If you have continued to use your company’s account to receive your salary then that is accounted for as a directors loan to the company and you can draw down on it as you wish.

Probably worth just having the salary paid to your personal account to save on admin for your company.

Thank you, so if, during the period of Umbrella company payments (tax and NI) the company has also paid £10,000 in Corproration tax is that incorrect?

I appreciate this is probably a real numpty question, but that is what has happened and it seems that more CT is accruing.

hodd

happyandcontented wrote: »

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?

I’m clearly not an expert 😀 but I guess you’re currently claiming expenses with your limited company. Wouldn’t that look odd to HMRC when you change to the new contract? They might question those earlier expenses. The same thing is happening where I work, and a lot of people are planning to leave.

steampowered

If the company has traded in the last 3 months, it is a criminal offence for you to apply for a strike-off (see http://www.legislation.gov.uk/ukpga/2006/46/section/1004).

After you have waited 3 months, you would still need to notify HMRC. Again it is a criminal offence if you fail to do this. This is clearly stated on form DS01 which says "You must send copies of this application to all notifiable parties e.g. creditors, employees, shareholders, pension managers or trustees and other directors of the company within 7 days from the day on which the application is made".

If you paid yourself a dividend while the company owed corporation tax it could not pay, that was an unlawful dividend. Legally, you need to return the unlawful dividend to the company so that it can pay its debt to HMRC. You will also have breached your directors' duties as a director of the company. Have a read of https://www.keystonelaw.com/keynotes/the-dangers-of-unlawful-dividends#targetText=Dividends%20may%20also%20be%20paid,the%20shareholders%20and%20the%20directors.

Of course it is entirely possible that HMRC might write-off the £9k and not pursue it for cost reasons. It is also entirely possible that you could get asked to repay the unlawful dividend and, less likely, prosecuted.

happyandcontented

hodd wrote: »

I’m clearly not an expert 😀 but I guess you’re currently claiming expenses with your limited company. Wouldn’t that look odd to HMRC when you change to the new contract? They might question those earlier expenses. The same thing is happening where I work, and a lot of people are planning to leave.

Yes, the team has been decimated, and appeals are increasing, but I only have 2 years max, till retirement so I plan to sit it out but the CT is an issue.

hodd

Fair enough, but aren’t you a bit worried about HMRC querying limited company expenses as you’ve stayed at the same place with a new contract?

I mean, I hope it works out for you obviously, but that’s the concern of a few contractors I know. Maybe your expenses are low.

motorguy

happyandcontented wrote: »

Yes, the team has been decimated, and appeals are increasing, but I only have 2 years max, till retirement so I plan to sit it out but the CT is an issue.

You would be safer keeping the two separate - your outside IR35 contracts through your LTD co, and any inside IR35 contracts through an umbrella co.

Thats what i do.

motorguy

hodd wrote: »

Fair enough, but aren’t you a bit worried about HMRC querying limited company expenses as you’ve stayed at the same place with a new contract?

I mean, I hope it works out for you obviously, but that’s the concern of a few contractors I know. Maybe your expenses are low.

That wont be the main issue - it will be why the sudden change in IR35 status (i assume because the end client is now making the decision ahead of the Apr '20 legislation change), and thus they could attempt to tax retrospectively at inside IR35 rates.

Having said that, its unlikely, and HMRC have even said as much.

Theres no big money in it for them to chase small minnows.

hodd

motorguy wrote: »

they could attempt to tax retrospectively at inside IR35 rates..

Thanks. That’s what I meant to say. Have HMRC made a comment to say this is unlikely? A few of my colleagues are concerned enough (the end client has recently made the inside IR35 decision) to consider moving jobs before their IR35 status changes.