Can't pay Corp Tax - how to wind company up?

[northern_lass2]

We have a small consultancy business that is a limited company. Until recently, we left all accounting and book-keeping to our accountant because we had no experience of it, didn't understand it and also didn't have time to do endless paperwork as we both worked very long hours. On top of that, I was ill for a few months and then we had a baby so I had even less time for admin tasks. I am essentially a housewife who does not understand tax or accounting - I assumed that's why we paid an accountant, to do all that for us......but I'm now more stressed than ever.....

To cut a long story short, we discovered that we couldn't afford our corp tax bill last year so arranged a payment plan with HMRC. After trying to plough through endless paperwork that made no sense at all (bearing in mind I am not an accountant and have no training in any of this) we changed to a new accountant who is now giving us conflicting advice....one minute he tells us to just do nothing and ignore it because the HMRC have bigger fish to fry (!!??) and then he writes to us saying we need to pay up immediately or we'll be in trouble....aaarrrghhh!!!

Because our business has not traded for the last 4 months, we can't afford this year's corp tax either, so was assuming that it would be added to the existing payment plan, but our accountant has said the HMRC won't do this and we have to pay up immediately. Clearly we don't have the money for this, or we wouldn't already be on a payment plan....so I'm now extremely worried about what will happen.

Before you all start condemning us for taking too much out of the business, we repeatedly asked our accountant to let us know exactly how much we should be taking each month and how much needed putting aside for tax and neither of them have been able to give us this figure, despite the income being exaclty the same each month while it was trading. Is it really do difficult to work it out? And if 2 accountants can't work it out, then how on earth are we supposed to know?

All VAT is uptodate, it's just corp tax that we owe (and also personal tax payment plan as well) and we really can't afford to increase the payments on the payment plan. We have a mortgage and other bills to pay, not to mention a young child to look after.

Has anyone else been through a similar experience? What is the worst they can do to us? Will they make us personally bankrupt or strike us off as directors for not managing the business properly? Before anyone asks, we are NOT trying to avoid paying our taxes, we would never do that, but we're in a position of extreme financial difficulties because work's dried up and we had to live on something, so ended up taking too much out the business, and need to know what our options are. There's usually more than one way to deal with problems so I would just like to know what is going to be our best option.

Thanks for any advice.

[bwglaw]

Is the Accountant qualified?

Bigger fish to fry?...hmmm. HMRC will do as much as they can to recoup what is owed. You as a Director have a statutory duty to act in the best interest of the company and should ensure that the company complies as much as possible with its statutory obligations to avert any serious consequences.

It seems that winding up the company may be an option for you, however, this comes with a cost if you as a Director file the winding up petition. If you cease trading, notify HMRC and other creditors and invite them to wind up your company.

If you have any personal guarantees as Directors, these will remain enforceable.

[northern_lass2]

yes it's a local accountancy business and he spoke to an IP that he uses and that was his advice....to "do nothing"....it sounded v dodgy to us so we just carried on our payment plan, but now we've got more Corp tax to pay but can't afford it.
I'm not aware of any personal guarantees as directors. We do have a directors loan account because we took took much out the business last year, so I know we have to repay that, but otherwise there are no other creditors.

[bwglaw]

Something does not quite add up, but that could be largely due to the absence of any facts. If your Accountant is qualified, follow his advice. Try and get the Accountant to put his advice in writing.

[northern_lass2]

hmmm yes that's how I feel about it too. If it was that simple, to just 'walk away', then everyone would be doing it and it just doesn't feel right. I think I will write to HMRC because I'd rather show co-operation and do whatever I can, than just ignore the problem and hope it goes away. If the accountant did put his advice in writing, would that help at all? Would we have any comeback if it all went pear shaped???

[Jenni384]

If the accountant did put his advice in writing, would that help at all? Would we have any comeback if it all went pear shaped???

If he is qualified, or if he isn't but does have Professional Indemnity Insurance, then yes. If he gives you bad advice and you suffer from it you can claim on his insurance.

The bottom line is the company is a separate legal person. If it can't afford to pay the CT then it can be struck off and HMRC can't come after you personally, unless it can be proved that you have mismanaged the company.

Another scenario where you personally might have to pay some money is if you have drawn more money out of the company than you were entitled to (such as, you took £10k dividends when there was only £6k in retained profit).

If you have taken money out of the company correctly and the company can't afford to pay it's CT then in a nutshell you can walk away but I really would take your accountant's advice on this and follow it as we don't know all the facts and are speaking from limited information.

It's important that you have faith and confidence in your accountant. If you don't, then you should consider moving to someone else.

[Jenni384]

If it was that simple, to just 'walk away', then everyone would be doing it and it just doesn't feel right. I think I will write to HMRC

I know it doesnt feel right but it's a legal 'get out' for people who are in trouble and can't afford to pay. This is why companies have limited liabilities!

I really don't advocate contacting HMRC without talking to your accountant first - you employ an accountant so they can talk to HMRC instead of you, because accountants are trained and know the right things to say to them. It sounds like a communication misunderstanding between you, the accountant and HMRC and I would speak to the accountant first. Let us know what he says.

[northern_lass2]

I think that's the problem. I'm not sure I do have faith in this accountant. Our previous accountant turned out to be more experienced in sole traders and we were the only Ltd company, so she gave us duff info about how much to leave in the company, which is how we ended up on a payment plan in the first place, so we moved to someone else, and now his advice just seems to be all over the place. it's very hard to find a good accountant and know you can trust their advice when you're not v knowledgeable about the subject yourself....

[Chris Ashdown]

Is it not the case that you took out more than you were entitled to, so if HMRC closes the company down they can still come after you for the money owed or the administrator will

Dividends can only come out of proven profit up to you to prove you had the profit there when you took the money) and if it was taken as a loan then it will be repayable to administrator

[northern_lass2]

that's what I thought, which is why I don;t fully trust the advice of just doing nothing. I just wondered if there was anyone else out there who had been in the same situation and what they did about it....

[Strontium Dog]

I think we are saying the only asset of the company is a loan advanced to the directors and the only liability is corporation tax to HMRC.

By just doing nothing you are forcing HMRC into serving a winding up petition. You will get the company wound up without paying anything. Yes, ultimately the liquidator will do a deal with the directors to recover the overdrawn directors loan but this could take months.
Just a thought as to why the accountant might be saying what he is.

[Spongebob]

When my last company was wound up by HMRC and liquidated by the Official Receiver, I simply explained away all monies I had taken for myself in the final six months or so as salary. Nowhere in my 'accounts' did I make any mention of dividends or directors loans.

I was not asked by the OR to substantiate this in any way; nor did they ask to see any PAYE or NI records. After a 2 hour interview I never heard another thing from them and the company was dissolved.

I am sure that OR officials vary in their approach across the country, but all I can say is that my experiences of them are that so long as they can tick the boxes to show that they have fulfilled their duties they do not delve too deeply.

I have replied to your PM, Judith.

Bob

[Spongebob]

I think we are saying the only asset of the company is a loan advanced to the directors and the only liability is corporation tax to HMRC.

By just doing nothing you are forcing HMRC into serving a winding up petition. You will get the company wound up without paying anything. Yes, ultimately the liquidator will do a deal with the directors to recover the overdrawn directors loan but this could take months.
Just a thought as to why the accountant might be saying what he is.

Good post.

HMRC will serve a winding up petition and the subsequent liquidation of the company will be conducted by your local OR office. If they identify the directors loans then they will expect you to repay them; they are not in the business of forcing you into bankruptcy however (they see more than enough of that already!) and you will be able to negotiate reasonable repayment terms.

Note that it is the OR office you will be dealing with, NOT HMRC. They will not have any more involvement directly with you.