Liquidation decision [Archive] - UK Business Forums

spiralstaircase

8th February 2009, 09:35

I'd welcome any advice that will help me to make the right decision about a business. Some basic facts first:

Limited company established for four years.
No creditors apart from HMRC.
No business overdraft or company loans of any description.
No assets of any kind.
One Director and company secretary.
VAT registered.

A situation has developed where retrospective tax bills are now creating an intolerable financial strain. It is simply impossible to meet personal financial commitments and demands from HMRC.

Attempts have been made to keep up-to-date with demands and these have been successful up to now. Unfortunately, another bill is looming which I am certain will be the straw that will break the camel's back. The situation has been worsened by a completely inflexible approach to issues like penalties and charges. A good example would be the application of VAT surcharges on e-payments that have arrived ONE day late.

The services that the company provides are in demand and whilst income is only as predictable as the current climate permits, it will be impossible to meet any new demands and cover essential personal expenditure. I would have no concerns were it not for the HMRC liabilities.

I know from expereince that HMRC offer only extremely tight payment terms and adopt an aggressive approach to collection.

As a result of the above I can foresee an imminent situation where the company will be presented with another tax demand, to be added to an existing demanding payment plan.

I would summarise the situation as a steadlily rising series of tax bills which cannot be met at the same time as personal liabilities. Working ever harder to try earn enough money to pay bills from income is just treading water in the knowledge that even bigger tax bills are in the pipeline. Obviously no-one is going to pay HMRC before they pay their bank or building society.

I feel as if I have simply had enough and that my response to the inevitable threats and refusals to negotiate an affordable plan should be a simple "fair enough, do your worst then, I'm offering to pay but I CAN'T pay." It might be irrelevant but I feel the need to point out that this is not a case where no attempts have been made to meet liabilities. Tens of thousands have been paid already, something which has kept personal finances on a knife edge.

I wonder whether I am missing anything here and I have any alternatives? At the moment, the only way I can see out of the situation is a fresh start, but is this even possible if the company goes under? Would I as the Director, be pursued for the company debts?

One final point that I would like to clarify is the issue of timing. Reading thorough other threads it seems as if this is critical and 'trading when knowingly insolvent' is a big problem. Since HMRC would be the ultimate cause of the company being unable to meet its bills, then what reasonable person would not try and keep trading in an attempt to pay?

Many thanks.

Cromulent

8th February 2009, 10:05

I wonder whether I am missing anything here and I have any alternatives? At the moment, the only way I can see out of the situation is a fresh start, but is this even possible if the company goes under? Would I as the Director, be pursued for the company debts?

Nope, that is the number one reason to be a limited company. The debts are the companies and not yours. You are two separate legal entities.

Although if you have been negligent as a director then problems can arise. Have you been paying a dividend while you have been debt for instance?

dp0848

8th February 2009, 10:10

As Cromulent says, it is highly unlikely that HMRC will be able to pursue you personally for the debts of the company.

There are a few situations in which they could pursue you. If as a director you have acted in a fraudulent manner then they may have a case against you personally. Also if you have been trading whilst insolvent you can be held personally liable by the company's creditors.

I would suggest you seek professional assistance to plan your next move.

Regards.

David.

Tom McClelland

8th February 2009, 10:14

If the business cannot meet its historic HMRC liabilities then was it really viable? These liabilities almost entirely arise predictably and are nearly always money that was never yours in the first place.

The point I am making is that most government taxes are cashflow positive to your business. At the point when the liability arises you hold the money from either a customer or an employee. You get the cashflow benefit of that money for a period of time before payment to HMRC comes due.

For example VAT on sales you just hold in trust until the quarter end. Likewise PAYE and NI is money that your company withholds from employee wages on their behalf and prudently should be put aside the instant you pay your employees. If you cannot afford to do this then is your business viable? The only common exception I can see to this principal is employers' NI, which doesn't come straight out of your wages bill but is still totally predictable.

spiralstaircase

8th February 2009, 10:19

Nope, that is the number one reason to be a limited company. The debts are the companies and not yours. You are two separate legal entities.

Although if you have been negligent as a director then problems can arise. Have you been paying a dividend while you have been debt for instance?

Each month, there is company income. Each month, money is transferred from the company account to a personal account in order to pay bills. Not to buy houses, cars or luxury goods, just to pay a mortgage, credit cards, utility and other living expenses.

I'm not sure this counts as trading while insolvent. If the above pattern hadn't been repeated over the last twelve months, HMRC would have lost out on at least £30K.

Tom McClelland

8th February 2009, 10:27

Each month, there is company income. Each month, money is transferred from the company account to a personal account in order to pay bills. Not to buy houses, cars or luxury goods, just to pay a mortgage, credit cards, utility and other living expenses.

I'm not sure this counts as trading while insolvent. If the above pattern hadn't been repeated over the last twelve months, HMRC would have lost out on at least £30K.

Presumably you've been declaring this as personal income through your payroll system, and grossing it up for tax purposes to the gross pay that would be necessary to achieve the net pay extracted? Either that or declaring it as dividends, though you can only do that if the company is profitable.

Cromulent

8th February 2009, 10:32

Each month, there is company income. Each month, money is transferred from the company account to a personal account in order to pay bills.

Why didn't you just pay direct out of the company account?

spiralstaircase

8th February 2009, 10:36

If the business cannot meet its historic HMRC liabilities then was it really viable? These liabilities almost entirely arise predictably and are nearly always money that was never yours in the first place.

This is the old chestnut of 'putting aside' say 30% of all income to pay a tax bill at the end of the year. It's wonderful in theory, based on assumptions like your customers will always pay up on time, that the bank will always help you out (for nothing) and that you do not encounter issues like sickness or extraordinary expenditure.

Of course, reality is not like that, which is why so many small businesses have problems, not the commonly held perception that they just spend every penny they have coming in.

The particular problem I have faced has still not been explained to my complete satisfaction. That is, a phenomenon whereby just when I feel I have got on top of matters, a substantial new bill arrives. There is clearly some 'catching up' going on, but this doesn't alter the basic facts here, which are that unless HMRC comes up with a far more reasonable payment plan, tax debt and personal expenditure cannot be reconciled.

By way of example, the last demand was for just under £20K with a demand for payment in 14 days. Company turnover, say £60K. The best deal acceptable to HMRC was settle it in three months or else. So taking on board the point about money on account, how in the world would this be possible over the three months when you are having to find £7K a month against an income of £5K and that's before you pay all your domestic bills?

In fact, that money has been paid, but only by working as hard as possible and taking on additional personal debt. Is that 'trading while insolvent' and 'fraudulent' or just someone trying their hardest to pay their bills?

Williams lester

8th February 2009, 10:38

So, is the 30k paid to HMRC in the last 12 months all VAT? If so, this would indicate a turnover of about £200,000. You must have one huge mortgage!

spiralstaircase

8th February 2009, 10:39

Presumably you've been declaring this as personal income through your payroll system, and grossing it up for tax purposes to the gross pay that would be necessary to achieve the net pay extracted? Either that or declaring it as dividends, though you can only do that if the company is profitable.

This has been the approach since the company was set up. It was set up on the recommendtion of my accountant and he has never suggested any changes to the way in which money is handled and transferred between accounts.

spiralstaircase

8th February 2009, 10:40

So, is the 30k paid to HMRC in the last 12 months all VAT? If so, this would indicate a turnover of about £200,000. You must have one huge mortgage!

All assumptions are incorrect.

KM-Tiger

8th February 2009, 10:45

I would suggest you seek professional assistance to plan your next move.

Yes, get good professional advice. In this sort of situation there are always options with both pros and cons, and a good professional advisor can help you navigate through them. It's rarely a black and white decision.

The other question to ask is how you got into this situation in the first place, not to attribute blame, but to avoid it in the future. I can only think that something is wrong with your bookkeeping/accounting/reporting setup that you did not know well in advance what your liabilities to HMRC were.

You mentioned monthly drawings. Lots of people do that, but you must do so in full and complete knowledge of the risks and liabilities involved.

spiralstaircase

8th February 2009, 10:50

Yes, get good professional advice.

I'm open to that, subject to more costs, although I am somewhat frustrated by the inability of my existing advisor to be be able to explain some of the technical issues.
I will be rather more than frustrated if it turns out there were risks/consequences that it would be reasonable to expect a professional to advise his/her client about.

Williams lester

8th February 2009, 10:52

All assumptions are incorrect.

Perhaps you would care to enlighten us then, maybe then someone can give you advice on whether you may have been trading whilst insolvent.

spiralstaircase

8th February 2009, 11:12

Perhaps you would care to enlighten us then, maybe then someone can give you advice on whether you may have been trading whilst insolvent.

I am not going to post exact figures or very specific details on a public forum. If that's not sufficient for you to be able to help then don't try to. No hard feelings and I'll accept any advice from people who feel that they can offer general advice based on the information I am able to provide.

The £30K tax referred to was not VAT. VAT payments have been maintained correctly, apart from the odd one day late crime of the century/surcharge trigger/money for old rope game.

It was paid over a three month period or £10K per month.

The turnover figure was a reasonable estimate for 08/09 and provided simply to demonstrate a typical gross monthly income of £5K (ex VAT).

The size of the mortgage is irrelevant. Total domestic bills are high, but not unreasonable (no expensive car loans for example) and demonstrable.

So, I was having to pay HMRC £1OK per month for three consecutive months, knowing that I would not have gross income of more than £5K per month over the same period, therefore no possibility of putting money aside for next year's demand, with a VAT bill to pay in the quarter and normal domestic expenditure.

HMRC were unwilling to negotiate on the above, which was agreed via my accountant.

In the circumstances, I'm struggling to see how I could be seen to have done other than act in everyone's best interests, except possibly, mine. If I was trading whilst insolvent, then it was under duress from HMRC and in the full knowlledge of my accountant.

Marzipan

8th February 2009, 12:09

It's a horrible situation to be in Spiral, I sympathise. It's not that long ago that I lost all control of my bowels when I realised just how much of a mess I'd got us into by not keeping on top of the accounts.

Don't be too defensive about people asking for more detailed info, they need that in order to give you the benefit of their wisdom and make no mistake there are some very knowledgeable people on this forum who can give you terrific advice if you let them - it's understandable to be cautious about posting figures on a public forum but there's always the private message system.

What would you do for an income if you gave up on the business? Is keeping the business going not the best solution in the long term (notwithstanding any issues about trading whilst insolvent etc)? Who's to say you've been getting best advice from your current adviser? - that was our problem although to be fair I was at fault as well for not giving him the tools to work with.

You say HMRC are being unrealistic but is this an older arrangement, have you tried them recently? Have you spoken to them yourself or is it your adviser doing the negotiating (or not) for you? We just had to delay part of our VAT payment because of cashflow being a right pain at the moment and we were dreading talking to them but in actual fact it was a walk in the park - have been talking to others who are finding the same, that HMRC are taking a very softly softly approach.

I wish you well with it all and I hope you find a way through it, but I urge you to take all the advice on board that you can.

Martin P

8th February 2009, 12:22

Is the company profitable if you didn't touch any of the money for personal bills? If so, would selling it be an option? Good luck with it too.

spiralstaircase

8th February 2009, 12:25

If the business made a fresh start, everything would be ok. Demand is good. I would have enough income to pay all liabilities on time and make provision for a tax bill in twelve months. I would also be able to afford all of my domestic bills.

I don't know if I can explain the situation any more clearly than I have. I seem to be in a position where retrospective demands are so great (as others have said, how this has happened may only be useful in the future and doesn't help the present) that when combined with essential domestic outgoings, the two don't add up.

I just see this process repeating itself. In twelve months, I will be faced with a huge corp tax bill I can't pay because I will have had to pay the existing liability out of current income.

Thanks for the words of support. I'm far from depressed about the situation, just very frustrated. What's particualrly galling is being on the end of very aggressive approaches to collection and I must admit that a large part of me just feels like calling their bluff. As I stated, the company has zero assets, so threats to remove my goods etc, are really rather pointless.

You make a good point about negotiating direct. I may well do this. I would certainly feel a lot better about having a long term but affordable repayment pllan than one which forces me into saving up problems for the future.

spiralstaircase

8th February 2009, 12:32

Is the company profitable if you didn't touch any of the money for personal bills? If so, would selling it be an option? Good luck with it too.

Martin, I am the company if you see what I mean. It's a company with no outgoings, that's why there are no creditors apart from HMRC, no loans for equipment and no business loans or overdrafts.

I could say that I was a plasterer who was the only Director and who did all the plastering. There is no van or expensive tools. I travel to work in my own car and use a bucket and trowel from Wickes, worth about £10 and my customers buy all the materials. I just turn up and plaster. That would explain the way it works.

It also shows that the company is simply a vehicle. Its demise would not prevent me plastering the day after and would not concern my customers at all. In fact, I doubt they would notice.

Tom McClelland

8th February 2009, 13:12

spiralstaircase

8th February 2009, 13:40

So, it appears that the only significant outgoings are your living expenses and HMRC. And the income of the company has historically been insufficient to maintain both. You've managed to cover your personal outgoings from the company bank account but you cannot consistently cover the implied VAT/PAYE/NI/CT (presumably dividend tax?).

On what basis are you thinking of either continuing to run the current company, or cutting the current company and restarting? How is it going to make enough money to pay you and HMRC next time round? Are you going to raise your prices 50% and get just as much business? Are you going to work 50% more hours? (rhetorical questions, from the figures supplied the business looks a long way from being a going concern)

This may seem harsh, but I'm just trying to get you to think clearly about whether the business that you're trying to run stacks up as one that can both meet your needs for income and pay its/your tax bills on an ongoing basis, which evidently it wasn't capable of doing previously.

Tom

Doesn't sound harsh at all and I welcome any input that helps me to clarify my thinking.

I think it's slightly different from the situation you describe. I could try and explain it as follows. Starting from scratch, I can do a simple calculation based on past and predicted income, that shows that the books will balance, for want of a better expression. I'm including all the variables you mentioned.

At this stage, I believe the problem results from earlier (and I stress unknown) underpayments that I am unable to catch up with, at least over a period I can manage. What happens then is that in order to comply with HMRC's repayment schedule, I cannot make any provision for future liabilities, apart from scraping home in terms of VAT. So in several months, the whole process starts all over again.

I trust that explains why it's not about needing to increase prices or work longer, etc. In my mind, the only solutions, barring a miraculous trading boom, are that I can negotiate a much longer term repayment schedule or the tax liability disappears with the company.

Cromulent

8th February 2009, 13:54

I trust that explains why it's not about needing to increase prices or work longer, etc.

Why not? If you don't have enough money then raising prices and / or working longer sounds like exactly the kind of thing you need to do.

Either that or significantly cut the running costs of either the business or your own personal expenditure so you can pay yourself less.

Jaydee

8th February 2009, 13:57

I would say that it is possible that you may have some personal financial difficulties if you were to liquidate the company, or allow HMRC to take enforcement action.

In post #1, you say that the company has no assets.

You then say that you owe a sum to HMRC and they are your only creditor.

So if you currently have no assets/debtors and yet do have a creditor, it means that lifetime-to-date your company has made a loss (including dividends paid, if any).

In post #5 you mention that you transfer sums to your personal account to satisfy your personal living requirement.

Hopefully I am wrong, and you will say that there are no worries and that these transfers all go through the PAYE system, but my experience leaves me guessing that your accountant has suggested that these transfers can simply be treated as dividends as it is tax-efficient to do so - no PAYE no NI etc?

If this is the case, these dividends are illegal (as there are no lifetime-to-date profits to cover them) and so if you or HMRC liquidate, the liquidator will demand their repayment.

If all of these guesses so far are correct - you need to tough it out with the current company and negotiate a more prolonged payment plan with HMRC to get you out of this hole, with due regard for future cash-flow pinch points (such as VAT quarters) to prevent future penalties making the situation worse.

spiralstaircase

8th February 2009, 14:18

Why not? If you don't have enough money then raising prices and / or working longer sounds like exactly the kind of thing you need to do.

Either that or significantly cut the running costs of either the business or your own personal expenditure so you can pay yourself less.

I don't think raising prices is viable in the current climate, certainly not by the kind of percentage figure that would enable me to blitz the problem.

I work long enough hours already and working longer would compromise my time needed to recuperate. There are other constraints which limit the hours I can work, although I stress I already work longer than most people's contracted hours ie over 40

Running costs of the business really could not be reduced, they are already minimal. Unless you count the accountant, being charged for paying money into a bank and buisness insurance of course.

There's some scope to cut personal expenditure and I am looking at the options as part of my decision. It wouldn't provide an instant solution but would help in conjunction with a longer repayment schedule.

spiralstaircase

8th February 2009, 14:30

If all of these guesses so far are correct - you need to tough it out with the current company and negotiate a more prolonged payment plan with HMRC to get you out of this hole, with due regard for future cash-flow pinch points (such as VAT quarters) to prevent future penalties making the situation worse.

I most definitely pay Corporation Tax, VAT, PAYE and NI.

I am increasingly coming to the conclusion that a prolonged payment plan is the only viable alternative to liquidation.

I am hoping that earlier comments about an increased reasonableness on the part of HMRC prove to be correct. If they are reasonable, they will get paid.

I don't want to liquidate the company, but I'm sure people will understand the perceived attraction of that course of action, compared to regular periods of intense pressure and threats.

dp0848

8th February 2009, 14:34

I don't want to liquidate the company, but I'm sure people will understand the perceived attraction of that course of action, compared to regular periods of intense pressure and threats.

Zeno makes a good point. If money is owed to HMRC but this money has been removed from the company as a dividend then it is an illegal dividend. Illegal dividends can be recovered by creditors.

Jaydee

8th February 2009, 14:41

downsouth

8th February 2009, 14:42

One thing I see here is similarities to some who work in my industry (IT contracting) they take pretty much all of the cash out of the business as a salary & divs, leaving next to nowt to cover PAYE, NI, VAT, Corp tax etc, with the hope in mind that they will still be in work to pay all the HMRC payments later in the year.

Baisically making any HMRC payments out of that particular months earnings.

Cant see any other way out of this than to simply pay yourself less, employ better book Keeping methods and leaving enough in the business to makes these HMRC payments.

Its too tempting when you have access to considerabe monetary amounts but I always look upon cash for VAT as simply not mine in the first place. sort your books out and set yourself a nice % figure to take each month as a salary and still leave enough to pay the bills.

If you need a higher % then work longer or charge more, if either of these aren't feasible then look at your business model and see where you can change so they are.

dp0848

8th February 2009, 14:44

It was me, it was me!:)

Oops, sorry Jaydee. Was reading two posts at once - it does not take a lot to confuse me. :rolleyes:

spiralstaircase

8th February 2009, 14:51

Zeno makes a good point. If money is owed to HMRC but this money has been removed from the company as a dividend then it is an illegal dividend. Illegal dividends can be recovered by creditors.

Even to a financial illiterate like me, it's obvious that limited status would and should not protect Directors and accountants from illegal behaviour. :)

There has been no chicanery so far as I can see. My approach has never been questioned by my accountant, or the accounts queried by HMRC. The facts are that I make payments of VAT, CT and PAYE. It therefore seems unlikely that all payments are actually illegal dividends.

dp0848

8th February 2009, 14:56

spiralstaircase

8th February 2009, 15:07

Where has the cash for the tax bill gone Spiral? The correct way to do things is to calculate the profit and the tax due, deduct one from the other leaving a balance that can be paid out as a dividend. Have you taken more from the business than the balance remaining after deducting tax from the profits?

I suspect that's the root cause of the problem. I have really stopped looking at how I have got here and been preoccupied with how I get out of the situation.

On a month-by-month basis, I would like to set aside a percentage to meet future CT/PAY/IT liabilities, in exactly the same way as I just manage to do for VAT.

Unfortunately, when you are being forced to pay HMRC more than you have coming in, in order to meet an old liability, this is plainly impossible. Then it starts all over again.

dp0848

8th February 2009, 15:08

Are all your dividends correctly documented Spiral?

spiralstaircase

8th February 2009, 15:15

Are all your dividends correctly documented Spiral?

I hestiate to answer your question emphatically because I honestly don't know. What I can say is that the books have all been prepared and submitted on time, by the same accountant for years now. It's not a dodgy one-man backstreet band either and I would just reiterate that there have been no attemots at chicanery. In fact, I'd rather welcome the odd dodge, because the accountant seems incredibly correct and respectful of HMRC in his approach and I have the distinct impression I don't get away with anything!

Jaydee

8th February 2009, 15:16

On a month-by-month basis, I would like to set aside a percentage to meet future CT/PAY/IT liabilities, in exactly the same way as I just manage to do for VAT.

Unfortunately, when you are being forced to pay HMRC more than you have coming in, in order to meet an old liability, this is plainly impossible. Then it starts all over again.

But by definition (with your having more creditors than assets currently) you have either made a net loss lifetime-to-date or you have paid out dividends greater than your net profits lifetime-to-date. Therefore if you pay a dividend now, before your ongoing business profitability has taken care of the outstanding crown debt - that dividend will be illegal.

And so too was January's and December's and so on - all the way back to the last point that your assets exceeded your liabilities.

You really need good professional advice here, and I suspect from your earlier posts that you do not feel confident that your current accountant is providing this.

dp0848

8th February 2009, 15:23

99 out of 100 there is no chicanery, it just that people do things wrong. If your accountant has been doing the paperwork then I'd hope it is all in order. Clearly something has gone wrong and too much cash has been extracted from the company. My advice to you would be to sit down with your accountant and work out where its gone. Then you can arrange things so it does not happen again. Then I'd advise you to negotiate with HMRC. The bottom line is if there is only £100 a month spare HMRC can't take £101. The danger for you will come if HMRC think there are illegal dividends and that you, personally, have assets. In this case they may seek to liquidate the company and recover the monies from you personally. Take proper professional advice Spiral. This problem needs specific advice rather than the general advice that me and others can give on a forum.

dp0848

8th February 2009, 15:25

Spiral,

Jaydee and I are sending out the same message here - get specific professional advice ASAP.

Hope you manage to get things sorted.

David.

spiralstaircase

8th February 2009, 15:46

I take the points about specialist advice and will give some thought as to who would be best to provide it.
Nevertheless, the advice and info on this thread has been very helpful and it is appreciated At the very least it has provided me with some useful background that will save me time understanding the issues before I have more detailed discussions with a professional and/or HMRC.
Can I just confirm my understanding that what some of you are saying is that it is only any illegal dividends that would be recoverable against my personal assets?

Tom McClelland

8th February 2009, 16:01

Spiral,

Jaydee and I are sending out the same message here - get specific professional advice ASAP.

Hope you manage to get things sorted.

David.

I'll third that. I've been pondering all along how a company that never has any significant outgoings other than its director and HMRC can possibly be left unable to afford its CT bill if the dividend payments were made legally. I think a lesson here for any lurkers is that shareholder/directors of limited companies should NOT confuse money that belongs to the company with money that belongs to them. There are specific procedures to follow when taking money out of the company that cannot legally be ignored. The inconvenience of those procedures is part of the price that you pay for the personal protection that the directors gain from limited company status.

If a shareholder/director treats the company's money as synonymous with their own money (as a sole trader might) then they really cannot be surprised when the company's debts are treated as their debts. You can't have it both ways.

If your accountant let this happen I'm tempted to wonder if you should change accountants. If as you say your ongoing income is sufficient to cover your ongoing tax payments and your cost of living and a reasonably rapid payment plan I hope that you manage to negotiate one.

spiralstaircase

8th February 2009, 16:11

If your accountant let this happen I'm tempted to wonder if you should change accountants.

If as you say your ongoing income is sufficient to cover your ongoing tax payments and your cost of living and a reasonably rapid payment plan I hope that you manage to negotiate one.

You are not the only one. :)

That will be the interesting thing. From what I have been told and experienced, HMRC like things paid in a short timescale like three months. They don't seem to take fulll account of what problems this causes. My back of an envelope calculations suggest twelve months would be needed to reconcile everything, so we shall see.

Tom McClelland

8th February 2009, 16:16

You are not the only one. :)

That will be the interesting thing. From what I have been told and experienced, HMRC like things paid in a short timescale like three months. They don't seem to take fulll account of what problems this causes. My back of an envelope calculations suggest twelve months would be needed to reconcile everything, so we shall see.

I suspect that if you can genuinely show them a 12 month plan that (a) pays new debts to HMRC expected to be incurred during that 12 months, (b) pays off the existing debt, (c) allows you to keep on eating and (d) seems realistic on the income side then they'd accept that in the current climate, unless you've often let them down in the past. My understanding (rightly or wrongly) is that they've been told to keep businesses afloat where that is realistic.

Morally that beats the liquidate and walk away option hands down. And it would leave you without the worry that they'll come after you personally for the debt anyway.

But that's just my 2p, I'm not a professional in this field.

fathippy

9th February 2009, 16:17

The turnover figure was a reasonable estimate for 08/09 and provided simply to demonstrate a typical gross monthly income of £5K (ex VAT).

Much as I hate the existence of the threshold, may I suggest that if your annual turnover is either 69 or 70.5k (depending on which VAT rate we are looking at) then you may as well do a smidge less work this year and de-register for VAT. That may leave you as much as 7k better off in the end. (you mention you have no input costs)

Tom McClelland

9th February 2009, 16:31

Much as I hate the existence of the threshold, may I suggest that if your annual turnover is either 69 or 70.5k (depending on which VAT rate we are looking at) then you may as well do a smidge less work this year and de-register for VAT. That may leave you as much as 7k better off in the end. (you mention you have no input costs)
That actually depends if his customers are VAT registered or not. If his customers are VAT registered they couldn't care less that he charges them VAT. Since he has no purchases to speak of it may well be worth some income to him to go on the VAT flat rate scheme, but I'm assuming that his accountant went through this option with him.

Jaydee

9th February 2009, 16:36

If his customers are VAT registered they couldn't care less that he charges them VAT.

That used to be the general given principle as the number of traders with input tax blockages (through partial exemption etc) were relatively modest - but of course now with the popularity of FRS, there are vast numbers of traders unable to recover input tax despite being registered - so this blanket statement can now be used less and less.

nasirs

15th February 2009, 19:41

What I understood is, you ran your business, paid all the taxes, missed a few and now it is making very difficult for the business to keep up with current and previous payments to HMRC. I have seen this with many businesses and there could be many reasons behind this which I guess we are not discussing at the moment.

What you should do is firstly, ask your accountant to go through your books or double check if any payment has been missed taken as wages, if yes then take it as a wage and add that liability to HMRC liabilities. This would secure you with that illegal dividend point mentioned above. This way you might will be liable to pay that PAYE liability on your wages not the whole amount.

I can see where you coming from by starting fresh as you could see the business could keep up with current taxes, it is only the previous back log which is causing troubles. If planning then you will not be able to have similar name as it is an offence for a director to be a director or directly/indirectly involved in the formation, promotion or management with the same or similiar name.

There is a detailed process involved as you might have to look into Company Voluntry agreement (CVA), liquiators etc.