company liquidation

hillway · Jul 21, 2011

Im trying to make my ltd company insolvent -

I have ceased trading 3 months ago ..and done nothing with it since

Basically the only money the company owes is about 15 k corp tax and 3.5 k VAT
i am a only a small one band IT consultant who has been trading 3 years .

I have about 5k left in the business account and therefore cannot pay the corp /Vat due

I have no assests in the business apart from a laptop which is now worthless or very little.

im asking your advise on what to do next - do I appoint an IP to liquadate or is there any advise you can give me or follow to get this issue resolved.

MAny thanks - hope you can help me / advise where i go from here.

hillway · Jul 22, 2011

no replies...has anyone any idea ?

Scalloway · Jul 22, 2011

An IP will cost the company. If HMRC are the only creditor then leave it to them to pursue the debts.

Chris Parry · Jul 22, 2011

You could probably find an IP willing to wind the Company up for the £5k the company has. However, you would have to get a resolution agreed from the Creditors that the fee is paid from the assets of the Company, which if they reject, would mean no money for the IP. In reality, they will have time costs incurred from adminstering the liquidation, and would ask for the funds that way instead. An IP may ask you to indemnify the fee if they cannot draw it in full from the assets of the Company (the balance on account).

Alternatively, as Scalloway said, you can let the Revenue wind the Company up. If you do that you shouldn't just draw the remaining bank balance for your own use, that is putting an asset beyond the reach of creditors. Are you due any remuneration you can draw? If there are funds left over, it may be wise to make the payment to Revenue while letting them know there won't be anymore due to the ceasation of trade. They will likely still pursue the Company, and have it wound up eventually anyway. That is unless they give up after it is struck from the register once you stop putting your returns in.

To apply to have the Company dissolved, you must not have traded in the last three months. Given you have done that, you can apply to be removed from the register by appying to Companies House with the £20 admin fee. You will have to inform your creditors who may object within three months from now. Likely HMRC will object, but you never know, especially if you pay them the remaining balance and give them your latest accounts showing there are no further assets to claim.

Spongebob · Jul 24, 2011

hillway said:
Im trying to make my ltd company insolvent -

I have ceased trading 3 months ago ..and done nothing with it since

Basically the only money the company owes is about 15 k corp tax and 3.5 k VAT
i am a only a small one band IT consultant who has been trading 3 years .

I have about 5k left in the business account and therefore cannot pay the corp /Vat due

I have no assests in the business apart from a laptop which is now worthless or very little.

im asking your advise on what to do next - do I appoint an IP to liquadate or is there any advise you can give me or follow to get this issue resolved.

MAny thanks - hope you can help me / advise where i go from here.

First of all, you don't make a company insolvent; it is insolvent if it cannot pay its debts and there is little or no prospect of it being able to do so. From what you tell us the company is already insolvent.

The main legal requirement of a director of a company finding itself to be insolvent is to cease trading immediately. Trading while insolvent is unlawful and can jeopardise the protection a director has of limited liability for the company's debts.

You have ceased trading. Excellent.

The next legal requirement of a director finding himself in this situation is that he must treat all creditors equally, and not 'prefer' one over another. Creditors however, come in two types; 'preferential' and 'non-preferential'. Preferential creditors get first bite of whatever funds or assets remain in the company - only after they have been paid in full is any surplus distributed between the non-preferential creditors. Not surprisingly it is unusual for non-preferential creditors to get anything at all.

Until a few years ago the taxman was a preferential creditor but now he is not. The reason I am going into detail explaining all this is because about the only group of people still classed as preferential creditors in the event of a company failure are employees of the company who are owed money for salary, accrued holiday pay, expenses etc. This includes directors!

I am sure that you have not been paying yourself a proper salary over the last few months while you have been working hard at resolving the company's problems. There is no reason why you should not receive fair remuneration for this work, and I doubt that five grand fully covers it. A company which has ceased trading can still pay salaries to its staff if there is money in the bank.

In your position I would pay myself the £5000 as salary owed and make the necessary calculations regarding PAYE and NI. This will have the effect of increasing the debt to HMRC by a grand or so. Keep all the paperwork immaculate.

Then I would do nothing other than write to HMRC explaining that the company has ceased trading due to insolvency, has no funds or assets, and cannot afford to appoint an insolvency practitioner.

You may well be subject to HMRC's debt collection procedures but just keep to the above line. There is nothing that they can do other than eventually issue a winding up petition. You are not liable personally for any debts of the company and they cannot take action against you or seize any of your possessions or property.

In due course a winding up petition will arrive in the post and following a hearing at the High Court in London (which you just ignore completely) the company will be placed into liquidation and into the hands of the Official Receiver.

All that remains is that you will be interviewed by the OR as to the reasons for the company failure and the file closed.

Job done.

It really is that straightforward (unless you've done something naughty which you haven't told us about!)

Get in touch if you need any more help.

Cheers
Bob

hillway · Jul 24, 2011

guys just to Say many thanks for this sound advise,

taken all your points on board..!!

Ill let u all know how I get on....

Alan R Price · Jul 25, 2011

If you want to get the thing over and done with you could actually apply to the court yourself to have company put into liquidation - you could use the money it its bank account to do this. You would need to instruct a solicitor, who will probably charge about £1,500-£2,000, including court fees. Have a look at the official receiver's website: http://insolvency.gov.uk/pdfs/guidanceleafletspdf/guidefordirectors.pdf.

Otherwise, as Bob says, you could just sit back and let HMRC petition. Attempting striking-off is probably not appropriate because there is a likelihood HMRC will object.

Spongebob · Jul 25, 2011

I'd never heard of that option Alan, so thank you.

The 'Sit back and wait for HMRC to petition' strategy still seems the best bet to me however.

It is to your credit as an IP that you are happy to endorse it for small and straightforward cases.

hillway · Jul 29, 2011

Just a quick question on this regarding the VAT - shall I not pay anything.
and shall i rite to the VAT office telling them of the company's situation as well as HMRC. ? :|

Jenni384 · Jul 29, 2011

hillway said:
Just a quick question on this regarding the VAT - shall I not pay anything.
and shall i rite to the VAT office telling them of the company's situation as well as HMRC. ? :|

Yes, you have to treat all creditors equally (with the eXception of preferential creditors which HMRC are not), so write to the VAT office the same as you would the other tax offices.

hillway · Jul 31, 2011

guys what do i do about submitting the accounts for the company the accounts are now overdue do i continue to do the returns. or just leave it . i have written to the creditors as per above advise . thanks

Spongebob · Jul 31, 2011

I don't see that there's a lot of point doing the returns - any penalties that may be applied are to the company , not to yourself personally.

There's always the chance that Companies House might strike the company off for non-submittal of returns before HMRC start winding-up proceedings...

...that would be a result!

Atilla · Jul 31, 2011

Just as a 'what if' sort of question.

What if dividends have been paid ?

Even if no dividends paid, could the HMRC consider the Director negligent for not allowing for C.T.?

Spongebob · Aug 1, 2011

Atilla said:
Just as a 'what if' sort of question.

What if dividends have been paid ?

Even if no dividends paid, could the HMRC consider the Director negligent for not allowing for C.T.?

HMRC might consider it negligent not to allow for CT; however, once the company is in the hands of the Official Receiver HMRC have little or nothing more to do with the case. It is the OR who will form the view on whether the company has been run negligently or not.

OR staff deal with insolvent companies all the time, and know only too well that almost nobody puts the CT monies away in a seperate account to paid over when they are due. Companies generally budget for the CT monies out of future revenue.

When a company becomes insolvent due to an unforeseen change in trading conditions an inability to pay taxes as they become due is almost inevitable. THe staff at the OR office know and understand this.

Atilla · Aug 1, 2011

^^^^^^^
Cheers Bob.
Was just wondering. A spot on answer as usual.

BobBuilder · Aug 1, 2011

When I read posts like this it seems as though the advice is,

"start up a company, make a profit, pay yourself whatever cash the company has (including any VAT paid to it by your customer) as a salary, account carefully to HMRC for employers and employees NI and PAYE (but don't pay it) and then walk away". Repeat.

Result - personal income entirely tax free.

Makes the "paying part salary/ part dividend" approach to tax planning seem very lame in comparison.

The advice is, in my opinion, wrong.

Atilla · Aug 1, 2011

I don't think the advice is wrong, the ethics of the company/directors who operate like that are.
Some individuals are scammers/chancers who will often operate on the wrong side of the ethical line, some are just plain ignorant (no excuse) of their obligations AND look for the chancers way out. Some are just unfortunate victims of circumstance who have tried to persevere but eventually lose the battle. Bob has covered this several times previously.

Sadly, there doesn't seem to be a process after the event to sort out the 'wrong uns'. In fact, the system can actually seem to work against those who follow the official procedures (for want of a better description) - step forward some of the less savoury financial advisors and IPs.

Bob has simply pointed out one of the least cost official procedures. If the authorities still fail to act against those who deliberately evade paying their dues, then what would you suggest??

BobBuilder · Aug 1, 2011

Atilla said:
I don't think the advice is wrong

To me, to advise,

"start up a company, make a profit, pay yourself whatever cash the company has (including any VAT paid to it by your customer) as a salary, account carefully to HMRC for employers and employees NI and PAYE (but don't pay it) and then walk away"

is analogous to

a solicitor advising a client that if they steal from a certain shop, they're unlikely to be caught.

or

an accountant advising a client not to correct a mistake in a past VAT return because it won't be noticed.

Both solicitor and accountant are correct but it's not professional advice - indeed both are probably estopped from giving such advice

Atilla · Aug 1, 2011

So what should the advice be - asssuming there is nothing left in the pot?

BobBuilder · Aug 1, 2011

Atilla said:
So what should the advice be - asssuming there is nothing left in the pot?

Fair question.

It's a problem (to me at least) promoting the idea that people can get entirely tax-free income in this way. However, additionally, in this case the business has £5k left

hillway said:
I have about 5k left in the business account

however the OP is encouraged to say that they've not had enough salary so they should grab whatever is left, to the detriment of the rest of us:

Spongebob said:
I am sure that you have not been paying yourself a proper salary over the last few months while you have been working hard at resolving the company's problems.

Jenni384 · Aug 1, 2011

I think there is a big difference between advising someone to premeditate taking all money out of the company and then getting it struck off without paying any taxes, and advising someone who has found themselves in an insolvent position having never intended to get there in the first place.

While it would be nice to think that people wouldn't premeditate into these situations, and while it is fair to say that advice such as is given on these forums does make it easy for someone to premeditate this kind of thing, I still think it is important that correct advice is still given to those who find themselves in these very stressful situations so they can resolve the situation as best as is possible.

Atilla · Aug 1, 2011

BobBuilder said:
Fair question.

It's a problem (to me at least) promoting the idea that people can get entirely tax-free income in this way. However, additionally, in this case the business has £5k left

however the OP is encouraged to say that they've not had enough salary so they should grab whatever is left, to the detriment of the rest of us:

Yes, and that may be true although in this particular istance, i suspect not due to the size of the CT bill.

BobBuilder · Aug 1, 2011

Jenni384 said:
I still think it is important that correct advice is still given to those who find themselves in these very stressful situations so they can resolve the situation as best as is possible.

I would also want to help alleviate any body's stress if I could.

However, the OP doesn't say that they have any need for the £5k nor that they haven't a job nor that they haven't got an another close company trading quite successfully.

All the OP says is that they have a company that owes £18.5k and has cash of £5k.

The advice they receive is, in effect "take that cash yourself; here's how to do it" as in:

Spongebob said:
I am sure that you have not been paying yourself a proper salary over the last few months while you have been working hard at resolving the company's problems.

That's not a statement of the facts based on what the OP has said - it's someone winking at the OP and saying "this is what you say to justify the removal of the money that is owed to HMRC."

Are the accountants on here content with that?

Spongebob · Aug 2, 2011

BobBuilder said:
I would also want to help alleviate any body's stress if I could.

However, the OP doesn't say that they have any need for the £5k nor that they haven't a job nor that they haven't got an another close company trading quite successfully.

All the OP says is that they have a company that owes £18.5k and has cash of £5k.

The advice they receive is, in effect "take that cash yourself; here's how to do it" as in:

That's not a statement of the facts based on what the OP has said - it's someone winking at the OP and saying "this is what you say to justify the removal of the money that is owed to HMRC."

I make no apology for giving good advice on how to cope with the stressful situation that insolvency inevitably brings. My advice on the five grand in the bank is perfectly lawful and defensible; and hard facts like this are all I'm interested in. Whether or not there is an ethical dilemma in following this advice is up to the OP and his conscience - not me or anyone else.

All I'm doing is pointing out the legal situation and hopefully showing a path through the jungle...

BobBuilder said:
Are the accountants on here content with that?

Clearly they are.

Accountants too deal in hard facts - not ethical dilemmas.

Alan R Price · Aug 2, 2011

BobBuilder

Of course, for anybody deliberately to set out to defraud HMRC is dishonest and illegal to the extent of being criminal; and for those of us who pay our taxes it may be galling to see people "getting away with it". My experience however is that most people do not set up limited companies with the sole intention of putting one over on the taxman, even though that is how it sometimes looks. It is however a pretty simple task to do just that if one is not too greedy.

Regrettably, when we put prosecution reports or adverse directors' conduct reports (recommending disqualification) to the Insolvency Service, more often than not the response comes back that although there appears to be a reasonable case it's either not in the public interest to proceed or for some other reason the case is not going to be pursued. Roughly translated this means "We don't have the resources to pursue anything more than the most straightforward cases, oh and the figures must be big enough to make people take note when they see it in the papers." Or simply "we can't be arsed".

Of course, if I am a few days late submitting a conduct report my licensing body (the Insolvency Service) will use this as a stick to beat me, with the threat of withdrawing my licence. It's great.

hillway · Aug 3, 2011

ok Bob and co some interesting thoughts on here. thanks guys .

I have been into a IP and given him my direct figures and bank statements and the advice given is this I owe around 27 k Corp Tax and 3 K VAT

my turn over is approx 85 k so owe 17 k to Corp for year end and have traded approx 8 months into the next year as well - so I owe another 10k approx from this year trading so far....so approx 30 k in total is what I owe.

I have drawn down 35k since the last invoice was paid into the business account around May time as a salary / dividends.

- 3 months ago and have a balance of around 13 k left in the business bank account....My previous post I didn't have the correct figures.

I was hoping that I would get another invoice paid into the business account to help pay the CT and VAT but this obviously not materialise due to a down turn in the contract market- now I am insolvent and haven't had any work since either via this LTD company or for anyone else.

so what do I do now ... does the advise that BOB has given still stand ? As I am still in the same position there simply is not enough money to pay out what is owed

your help greatly needed.

Many thanks .

Alan R Price · Aug 3, 2011

hillway said:
ok Bob and co some interesting thoughts on here. thanks guys .

...approx 30 k in total is what I owe.

I have drawn down 35k since the last invoice was paid into the business account around May time as a salary / dividends.

Without trawling through previous posts I am not sure if the issue of a director's loan has been raised. If not you need to discuss with your accountant how the money you have drawn from the company should be treated. If you received dividends at a time when the company was insolvent (strictly, when it had no distributable reserves) you will have an overdrawn director's loan account. If the company goes into liquidation the liquidator will ask you to repay this. It's better that you understand the implications now so you can plan how to deal with it if you need to.

hillway · Aug 3, 2011

Thanks for Reply - Just awaiting spongebob to give this theonce over. as he seems to be the man in the know..... This is a minefield so many differences of opinion on what to do.

Spongebob · Aug 4, 2011

Any monies you have drawn since your income stream started to dry up should be booked as salary and not dividends.

As Alan says, 'dividends' paid while the company didn't have the distributable reserves available will be classed as a director loan and a liquidator will want them back. 'Salary' is yours to keep.

My previous advice still stands.

I will reply more fully later; I've got to get to work now!

BobBuilder · Aug 4, 2011

hillway said:
Thanks for Reply - Just awaiting spongebob to give this theonce over. as he seems to be the man in the know...

As you know, I am not convinced that the advice you are being given is 100% watertight and it might come back and cause problems in due course. Dont forget, this is just the Internet with some people choosing not to reveal who they really are.

If what Spongebob has said is correct then you should have no trouble getting an accountant (or other appropriate professional) to confirm that the approach is legal. The reason to do this is because professionals have liability insurance and therefore if it is not correct then you will have some recourse to them.

Hope this helps

BobBuilder · Aug 4, 2011

Spongebob said:
Any monies you have drawn since your income stream started to dry up should be booked as salary and not dividends.

Would it matter if no work had actually been done? Does the OP have to justify to themselves or others that a salary is due in the same way that would apply if a relative was paid a salary and there was a suspicion that he or she was being paid for non-business reasons?

BobBuilder · Aug 4, 2011

To Alan Price

Thank you very much for taking the time to reply.

On the points you raise,

Alan R Price said:
Of course, for anybody deliberately to set out to defraud HMRC is dishonest and illegal to the extent of being criminal;

If a company stops trading and subsequently the director pays themselves a salary whilst knowing that the company is insolvent, surely the extra NI & tax that the company then owes the HMRC puts the director in the same position that he or she would be in if they ordered something on credit from a supplier knowing that it would not be paid for?

Alan R Price said:
My experience however is that most people do not set up limited companies with the sole intention of putting one over on the taxman,

Again, thanks for sharing your practical experience. However, do you come across people who are taking the approach proposed here namely do nothing with the company and let the authorities do what they will? Would you still be involved?

Alan R Price said:
Regrettably, when we put prosecution reports or adverse directors' conduct reports (recommending disqualification) to the Insolvency Service, more often than not the response comes back that although there appears to be a reasonable case it's either not in the public interest to proceed or for some other reason the case is not going to be pursued. Roughly translated this means "We don't have the resources to pursue anything more than the most straightforward cases, oh and the figures must be big enough to make people take note when they see it in the papers." Or simply "we can't be arsed".

Would it help if the law was changed back so that HMRC again became a preferred creditor?

Atilla · Aug 4, 2011

BobBuilder said:
Would it help if the law was changed back so that HMRC again became a preferred creditor?

Perhaps it would be better if HMRC actually did their job.
The warning signs are often (although not always) there long before the company finally goes tits up.

We all see the high profile cases, ala Premiership football clubs, where they owe millions and are long long overdue paying monies to HMRC, who seem to have done nothing until it is too late.
How many small companies are trading in the same manner?

Spongebob · Aug 4, 2011

BobBuilder said:
If what Spongebob has said is correct then you should have no trouble getting an accountant (or other appropriate professional) to confirm that the approach is legal. The reason to do this is because professionals have liability insurance and therefore if it is not correct then you will have some recourse to them.

Hope this helps

Many years ago I had cause to seek the advice of a very expensive solicitor regarding the removal of a tenant to whom I had foolishly sublet a part of my business premises.

This solicitor listened to my problem and then very clearly explained the relevant legal position, together with the lawful and longwinded strategy for resolution.

He then explained the practical solution, i.e. one which pushed the boundaries of lawfulness but which I was almost certain to 'get away with'. I followed this advice with a very satisfactory result. That solicitor's rather large fee was money very well spent.

This was an important lesson for me very early in my business career. Choose your advisers carefully and opt for the one with a good understanding of the law but with the imagination to find a way around it.

Pedantic lawyers and accountants are of little use to anyone.

hillway · Aug 4, 2011

thanks bob u said u would elabarate a bit more?on my case if your advise still stands just wanted to know what ur thoughts are and advise me if so

Alan R Price · Aug 5, 2011

BobBuilder said:
To Alan Price

Thank you very much for taking the time to reply.

On the points you raise,

If a company stops trading and subsequently the director pays themselves a salary whilst knowing that the company is insolvent, surely the extra NI & tax that the company then owes the HMRC puts the director in the same position that he or she would be in if they ordered something on credit from a supplier knowing that it would not be paid for?

I would never advise somebody in that position to pay him/herself because it could be construed as a preference.

Again, thanks for sharing your practical experience. However, do you come across people who are taking the approach proposed here namely do nothing with the company and let the authorities do what they will? Would you still be involved?

For smaller companies the striking-off route is often the best way forward - it saves public time and money being wasted to chase debts which can never be met. Sometimes it is the trigger for HMRC to present a winding-up petition (at public expense) which produces the desired result, i.e. the company being put to bed. Sometimes sitting back and doing nothing (or simply writing to HMRC asking them to present a petition) will do the trick.

In most instances the official receiver will do a cursory investigation (if any) and if there is no obvious evidence of dishonesty or really culpable conduct (and this is often down to the size of the figures in the OR's eyes) that will be the end of it. If there are assets an IP will usually be appointed as liquidator. He has the power to sue directors and others who are guilty of misconduct in relation to the company.

Would it help if the law was changed back so that HMRC again became a preferred creditor?

I don't see how that would have any effect.

Spongebob · Aug 5, 2011

BobBuilder said:
If a company stops trading and subsequently the director pays themselves a salary whilst knowing that the company is insolvent, surely the extra NI & tax that the company then owes the HMRC puts the director in the same position that he or she would be in if they ordered something on credit from a supplier knowing that it would not be paid for?

Alan R Price said:
In most instances the official receiver will do a cursory investigation (if any) and if there is no obvious evidence of dishonesty or really culpable conduct (and this is often down to the size of the figures in the OR's eyes) that will be the end of it.

At this level of insolvency the chances are that the monies taken as salary by the director will be nodded through by the OR during their 'cursory investigation'. Even if they are disallowed however, the worst that is likely to happen is that they must be repaid - putting the director back in exactly the same position as if he had not taken the chance.

Seems like a one-way bet to me...

Maggie111 · Sep 26, 2011

Hi,

I'm in a process of liquidationg a LTD company and have a problem with VAT. As it turned out my accountant didn't file any VAT returns since Nov 2008 till the day the company sized trading as was trying to use the TOMS scheme to calculate the VAT. In December last year I had a visit from a VAT officer in regards of the returns and was notified that none of them have been filed. The officer gave me a time frame to file the returns but as my accountant never finished it up I had to email the VAT officer our balancing sheets so that she could calculate the VAT. Last week she sent me the calculations and asked either to accept them or file the returns. The VAT owed is arround 50k, the comapny doesn't have money nor any assets therefore cannot pay it. Is it ok to accept those figures? or will it indicate that I as the managing director have done something wrong and would that make me liable in any way?

Thank you,
Maggie

Jenni384 · Sep 26, 2011

Hi Maggie,

If the company is being liquidated, then any VAT debt will join all the other debts of the company. In this sense, it doesn't really matter what the VAT figure owing is, as there are no assets to pay it. If there's no money, you can't pay an accountant to calculate the correct figures.

There is already some excellent advice on this thread which may apply to your situation.

You appointed an accountant - you thought that by doing this, that would mean your tax affairs were being looked after. While the ultimate liability rests with the directors, reliance on your accountant can be a reasonable excuse, so I don't believe on the face of it you have any cause for concern.

As I have said in other similar threads:

If the company has no assets, then it can't pay for accounts, nor pay any fines.

I would be inclined to write to HMRC, stating that the company is insolvent, has no funds to prepare accounts, or to appoint a liquidator, and invite HMRC to wind the company up themselves.

This then puts the ball firmly in their court. HMRC will either get the Official Receiver involved to wind up the company, or they will let the strike off go through.

Just remember - these are the debts of the company, not yours, and if the company doesn't have the money, it doesn't have the money.

Maggie111 · Sep 28, 2011

Thank you Jenny, much appreciated.

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