Liquidation and Corporation Tax

[Steady Eddy]

Hi There,

I have a private ltd company with myself as the director and sole employee. Recently business hasn't been that good so I've gone into full-time employment and the company hasn't traded in over 6 months.

Right now, the company is facing a fairly large corporation tax bill which I simply can't afford. There is really no cash in the business account and the company assets are worth less than 1% of the tax bill.
I am considering a voluntary liquidation for the company but I'm unsure of whether I'll still be liable for the tax bill once this goes ahead.

Any advise at all will be greatly appreciated.

Thanks.

[David Griffiths]

If there is a large corporation tax bill, what has happened to the profits? Have you simply withrdrawn the cash, perhaps as dividends?

If that's the case, then it seems very likely that you owe the company money, which must be repaid, and may enable the company to pay the tax.

That's based on the limited information that you've provided

[Steady Eddy]

That's right David. The cash was withdrawn as dividends so I do owe the company money. Having said that, the amount I owe the company doesn't cover up to half of the tax bill.

Can you tell me what the general implications will be if I decide on a voluntary liquidation?

[CassioAcc]

Sounds like the company paid illegal dividends (i.e there was not enough retained profits after tax) so these will not be valid - there may be personal tax implications also.

[elainec100@cheapaccounting]

call HMRC - see this link and spread the CT over a payment plan:

http://www.hmrc.gov.uk/pbr2008/business-payment.htm

[Jaydee]

That's right David. The cash was withdrawn as dividends so I do owe the company money. Having said that, the amount I owe the company doesn't cover up to half of the tax bill.

Can you tell me what the general implications will be if I decide on a voluntary liquidation?

The liquidator would demand the illegal dividends back, so your personal situation would not be helped by the liquidation.

If your illegal dividends do only equate to "less than half of the CT bill", then it must follow that the company has made a loss in the current year (otherwise the cash would be there to pay the CT).

So, it will likely follow that you can prepare the current year's CT computation and carry this year's loss back to reduce the outstanding CT bill.

I would agree a payment plan, repay the illegal dividends to allow the company to adhere to the plan, prepare the next CT600 as soon as possible and carry back the loss - shortening the accounting period if need be to accelerate when this can be done.