Unpaid CT Liability - Implications?

[Mary_Poppins]

Hi all

I'd really appreciate any advice / thoughts on this one, although I will obviously be seeking other advice too.

I am Director of a Ltd Co (IT consultants) and 50/50 shareholder along with another Director.

The other director took a fairly sizeable Directors Loan in January 2009, from funds allocated for tax purposes. Said director has now more or less disappeared, and it is now obvious nothing will be repaid by him.

This leaves the company short of 2/3 of Corporation Tax due in December. I have informed HMRC that there will be a shortfall, and they have confirmed that they will offer a repayment plan. Given that the other director will clearly not contribute to this, the company faces repaying them from my dividends and salary. This is not really an option frankly, and I'm obviously very, very concerned.

I have (and still am) considering recovery action on behalf of the company, but am aware this may very well have little effect.

I am therefore wondering what action HMRC will take in the event that I take the difficult decision to leave the CT unpaid. I understand from my accountant that they will ultimately issue a winding up notice. However, what implications will this have on me personally? Will it affect my personal credit rating, or chances of securing contracts in the future - i.e. setting up a new Ltd Co?

It just seems slightly baffling that this money could be taken with potentially little come back. As consultants, our Ltd Co has no assets to speak of.

Hope this rambling makes sense!!

:rolleyes:

[elainec100@cheapaccounting]

You say you have an accountant - they will be best placed to explain what will happen here.

[jim_price]

As well as the unpaid CT, you might now be looking at a s419 charge on the extent of the directors loan - this is charged at a rate of 25%.

In your position I would certainly pursue the debt and ensure that all of your efforts in that regard are clearly documented.

Hypothetically, where company funds have been allocated to directors in this manner there are potential actions from both HMRC and the Official Receiver. Your delinquent fellow director will have more to fear from this than you, but potentially you could be required to make a personal contribution to the creditors (failure to do that may lead to personal bankruptcy and impact on credit rating), and/or be facing a directors disqualification order.

If your accountant has a good insolvency practitioner within his/her firm or network maybe have an inital chat with them.

[Mary_Poppins]

As well as the unpaid CT, you might now be looking at a s419 charge on the extent of the directors loan - this is charged at a rate of 25%.

In your position I would certainly pursue the debt and ensure that all of your efforts in that regard are clearly documented.

Hypothetically, where company funds have been allocated to directors in this manner there are potential actions from both HMRC and the Official Receiver. Your delinquent fellow director will have more to fear from this than you, but potentially you could be required to make a personal contribution to the creditors (failure to do that may lead to personal bankruptcy and impact on credit rating), and/or be facing a directors disqualification order.

If your accountant has a good insolvency practitioner within his/her firm or network maybe have an inital chat with them.

The debt has been pursued to the best of my ability, but as he has disappeared, and I (nor the company) have no funds to pursue legally - there is little that can be done.

I have seen an Insolvency Practitioner today. Assuming the loan (and therefore the remainder of the CT) will not be repaid, I have been advised that the company will be wound up - either voluntarily, or by HMRC if I choose not to pay the IP to wind the company. I am in no position to pay the IP £5k to wind up the company. I'm also not sure that getting a 5k loan to do what will inevitably be done anyway, is worth it.

The IP insisted that the difference in allowing HMRC to wind the company up, is that they will obviously send bailiffs to the registered office (my home) and that I will "definitely" be struck off as a director.

The thought of such enforcement action is not very palatable, but given that I can't afford to pay the IP to wind the company up - it may be inevitable. As a Ltd Co Director, my personal possessions can't be taken I assume.

Not sure "definitely" being struck off as a director rings true however?

Given that I am 99.9% certain the CT will not be repaid - and given my financial position, I may have no choice but to allow HMRC to wind the company up.

Seems slightly unbelievable that it really has been so easy for the other Director to take £18k and have no comeback whatsoever. I haven't had confirmation from my accountant that the Directors Loan has been declared by a CT600A, which is also concerning.

:(

[jim_price]

I'm not sure that allowing the OR to deal with the liquidation as opposed to an IP will change the facts of the case, have to say from what you have presented you were given a sales pitch by the IP - £5k or a disqualification. Not terribly impressive :(

I would be tempted to continue your dialogue with HMRC. If you continued trading from this point would you generate sufficient cash over a, say 12-18 month period, to cover the outstanding CT? I would make it clear to them that the company has no tangible assets that would make distraint a worthwhile exercise for them, and I would also explain the position on the missing director. If the loan to the director is written off as unrecoverable then they will be able to make an assessment for income tax on that director as if he had received a net dividend in the sum of the loan.

[Dave Shaw]

I agree with Jim_Price - if the IP said that then perhaps you should speak to a different one!

In general terms and disqualification there should be no difference between going down a compulsory liquidation route and a voluntary route. Whilst I do not know if the statistics back this up there is a perceived difference - if it is an actual differnece it may be due to the type of director that ends up in compulsory compared to voluntary.

In terms of the liquidation some attempt would have to be made by the liquidator to recover the funds from the other director although this may have limited success.

I'm assuming from your post that there are no other assets or liabilities?

As per the prior post you should consider whether the company can trade out of this - you've obviously been making a profit otherwise the CT would not be an issue. However you would need to consider how you deal with the other shareholder and director.

In terms of your personal posessions these should be protected provided you haven't committed any offences or been negligent in your actions.

I'm happy to have a chat - PM me and I'll give you a call.

David Shaw
totalitysolutions.com