LTD Company Debts

Stevier88

Hi Guy's,

I'm looking for some advice on current debt i have with my ltd company. I used to operate through my ltd company as sole director for contracting outside IR35 roles. Things went down hill during covid with bills to pay personal expenses etc. which i had to use any remaining funds within the company to pay for meaning i couldnt pay corporation tax etc. and now have late payment fees/ fines just spirling out of control. The new IR35 regs in 21 pretty much ended any further contracting so nothing has been through the business since then. I also stupidly took out a BBL to get through covid. Due to that and personal issues, no excuses i should have gotten on top of this much sooner and probably shouldnt have started one before fully knowing my responsibilites, i'm in no position to pay off the debts. I have just had a letter from the sherrifs court demanding payment so not really sure where this leaves me or what my next steps are? Also to add i'm not in a positon to pay 5k to liqudate the company.

Any help would be much appreciated.

Thanks.

Bookworm105

so how much do you now owe the company (what is your director loan balance)?

is the company continuing to trade, or is it now dormant?

does the company meet "going concern" status or are you legally required to declare insolvency (" bankruptcy") ?

DullGreyGuy

Stevier88 said:

Hi Guy's,

I'm looking for some advice on current debt i have with my ltd company. I used to operate through my ltd company as sole director for contracting outside IR35 roles. Things went down hill during covid with bills to pay personal expenses etc. which i had to use any remaining funds within the company to pay for meaning i couldnt pay corporation tax etc. and now have late payment fees/ fines just spirling out of control. The new IR35 regs in 21 pretty much ended any further contracting so nothing has been through the business since then. I also stupidly took out a BBL to get through covid. Due to that and personal issues, no excuses i should have gotten on top of this much sooner and probably shouldnt have started one before fully knowing my responsibilites, i'm in no position to pay off the debts. I have just had a letter from the sherrifs court demanding payment so not really sure where this leaves me or what my next steps are? Also to add i'm not in a positon to pay 5k to liqudate the company.

What is your debt to the company? You've clearly borrowed from the company given it cannot pay its corporation tax.

Have you given any personal guarantees for any of the debts? 

The change in the IR35 regs, thankfully haven't killed outside roles down here and things have improved since when they were first implemented. 

Grumpy_chap

Stevier88 said:

Hi Guy's,

I'm looking for some advice on current debt i have with my ltd company. I used to operate through my ltd company as sole director for contracting outside IR35 roles. Things went down hill during covid with bills to pay personal expenses etc. which i had to use any remaining funds within the company to pay for meaning i couldnt pay corporation tax etc. and now have late payment fees/ fines just spirling out of control. The new IR35 regs in 21 pretty much ended any further contracting so nothing has been through the business since then. I also stupidly took out a BBL to get through covid. Due to that and personal issues, no excuses i should have gotten on top of this much sooner and probably shouldnt have started one before fully knowing my responsibilites, i'm in no position to pay off the debts. I have just had a letter from the sherrifs court demanding payment so not really sure where this leaves me or what my next steps are? Also to add i'm not in a positon to pay 5k to liqudate the company.

Any help would be much appreciated.

Thanks.

If you are not currently working outside IR35, are you currently working inside IR35, or in a regular staff role, or not working, or seeking work?
The first thing you need to do is to set out your current personal income and expenses to plan a budget that is feasible going forwards.  You could use the SoA (Statement of Affairs) template that is available in the debt-free wannabee area of the forum.
If the personal budget is challenging, the forum contributors in the DfW area will provide constructive review.

Then also set out the status of the Ltd Co.  What it is owed (including owed from you) and what it owes others.
What is the order of magnitude of the Ltd debts?  How much is that in relation to whatever personal income you have now?

Were the funds you drew from the Ltd Co. drawn simply as loans from the business to yourself, or as properly recorded salary / dividend?  

Were the funds from the BBLS expended within the rules of the BBLS?

Stevier88

DullGreyGuy said:

Stevier88 said:

Hi Guy's,

I'm looking for some advice on current debt i have with my ltd company. I used to operate through my ltd company as sole director for contracting outside IR35 roles. Things went down hill during covid with bills to pay personal expenses etc. which i had to use any remaining funds within the company to pay for meaning i couldnt pay corporation tax etc. and now have late payment fees/ fines just spirling out of control. The new IR35 regs in 21 pretty much ended any further contracting so nothing has been through the business since then. I also stupidly took out a BBL to get through covid. Due to that and personal issues, no excuses i should have gotten on top of this much sooner and probably shouldnt have started one before fully knowing my responsibilites, i'm in no position to pay off the debts. I have just had a letter from the sherrifs court demanding payment so not really sure where this leaves me or what my next steps are? Also to add i'm not in a positon to pay 5k to liqudate the company.

What is your debt to the company? You've clearly borrowed from the company given it cannot pay its corporation tax.

Have you given any personal guarantees for any of the debts? 

The change in the IR35 regs, thankfully haven't killed outside roles down here and things have improved since when they were first implemented. 

I did, this was taken to cover bills etc. with outgoings and absolutely nothing coming in. No personal guarantees as far as i know. I've seen more outside roles coming through recenlty but mostly in IT which isnt my industry. I have seen some in mine but not near the rates as before so i've been inside IR35 roles.

My main concern at the moment is the letter from the sherrif court i received yesterday. '' Served with this copy writt and warrent, with form O7 (notice of intention to defend) looks like companies house are taking me to court over late filing of accounts during covid so not sure where i stand with this.

Grumpy_chap

The OP should seek advice from their Accountant about the letter received yesterday and, at the very least, get the necessary filing submitted now so that further late filing penalties do not accrue.

The OP can expect that debts related to HMRC will be pursued against the Ltd Co., and against the OP all the while there is a Director's Loan outstanding where the OP has drawn funds.  HMRC debts are the equivalent of having a personal guarantee in this situation (even if not a personal guarantee by name / conventional manner).

The OP really must prepare their SoA and share in the DfW forum or seek advice from a suitable charity - CAB, Step Change, Business Debt Line, etc.

Bookworm105

Grumpy_chap said:

The OP can expect that debts related to HMRC will be pursued against the Ltd Co., and against the OP all the while there is a Director's Loan outstanding where the OP has drawn funds.  HMRC debts are the equivalent of having a personal guarantee in this situation (even if not a personal guarantee by name / conventional manner).

interesting, I thought HMRC had lost its preferred creditor status?

Grumpy_chap

Bookworm105 said:

interesting, I thought HMRC had lost its preferred creditor status?

I am not aware of a change but that doesn't prove there hasn't been a change.

DullGreyGuy

Bookworm105 said:

Grumpy_chap said:

The OP can expect that debts related to HMRC will be pursued against the Ltd Co., and against the OP all the while there is a Director's Loan outstanding where the OP has drawn funds.  HMRC debts are the equivalent of having a personal guarantee in this situation (even if not a personal guarantee by name / conventional manner).

interesting, I thought HMRC had lost its preferred creditor status?

It depends on the debt VAT, PAYE etc is still preferential status as that was never the OP's company money. Corporation Tax, CGT etc lost its status

Bookworm105

DullGreyGuy said:

Bookworm105 said:

Grumpy_chap said:

The OP can expect that debts related to HMRC will be pursued against the Ltd Co., and against the OP all the while there is a Director's Loan outstanding where the OP has drawn funds.  HMRC debts are the equivalent of having a personal guarantee in this situation (even if not a personal guarantee by name / conventional manner).

interesting, I thought HMRC had lost its preferred creditor status?

It depends on the debt VAT, PAYE etc is still preferential status as that was never the OP's company money. Corporation Tax, CGT etc lost its status

thanks for the clarification

Grumpy_chap

Whether or not HMRC have preferential creditor status with regard to the Corporation Tax, that may not be the issue in this case.  We don't have figures but the OP's Ltd Co. would appear - on paper at least - to be solvent as the balance sheet would show something like:

Asset, cash in bank or at hand £1
Asset, loan to Director £100
Liability, CT due £99
Net balance sheet £2

All the while the Ltd Co. appears to be solvent, HMRC will continue pursuing the CT and will oppose any application to strike off.
I am unclear as to how the OP would manage the loan, either normalising the loan to non-repayable (salary / dividend) drawings (which may give rise to different tax liabilities) and may as a technicality require the loan to be shown in the accounts as repaid (at which point HMRC will expect the CT to be cleared) before the salary / dividend drawings are recorded.  The other route would be the OP defaulting on the loan (at which point the Ltd Co. becomes insolvent) but I really don't know how that works unless the OP simultaneously declares personal bankruptcy.  The OP also needs to be mindful of not falling foul of rules around Director's Duties and / or Wrongful Trading.  
The OP's will likely need advice on these matters.  The OP's Accountant may be able to assist.  Or a charity like Business Debt Line.

The OP indicates that the business ceased trading around the time of COVID, so the CT liability must date from 4  or 5 years back.  In the intervening period, accounts have not been filed in a timely manner.  That gives rise to some penalties and interest.  What I don't know is whether, in the absence of accounts, HMRC make an assessed CT claim based upon past performance.  If there has been an assessed CT claim for 4 years when the Ltd Co. was not trading, would filing accounts now reduce that assessed claim to an actual claim, which would be "zero" for a non-trading business?  

All of the above should be matters that the OP's Accountant or Business Debt Line should be able to give better advice on (with the full figures available).

I think the OP's most urgent concern from the start of the thread was how they should respond to the letter received from the Court earlier in the week.  I am not sure that we have enough information in that regard to comment.

Hopefully, the OP is making some progress in preparing their budget / SoA so that they can at least have for themselves a clear understanding of the current situation, and can share with others as appropriate to seek advice / comment.  That might be independent advise such as from CAB or StepChange.

One final thought - and I don't think it will be relevant as the OP seems to be currently working an inside-IR35 contract role - would be whether the OP has checked any entitlement to benefits.  Even if they expect the answer to be negative, they can't lose much by entering their details into one of the online calculators such as entitledto.