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Not paying corporation tax

Discussion in 'Accounts & Finance' started by Janey, Oct 28, 2007.

  1. Janey

    Janey UKBF Newcomer Free Member

    Posts: 8 Likes: 0

    A friend of mine has turned to me for advice, but I really don’t know all the answers to her questions. I was wondering if I could get some advice from you or if you know of someone else I can talk to?

    A friend of mine owns a business and has got herself into serious financial difficulties and has not paid her corporation tax. ‘Judgement’ is being entered in two weeks and as far as I’m aware ‘enforcement’ takes place about two weeks later. Would there be a bankruptcy hearing after the ‘enforcement’ stage? How long does the process take before she is made bankrupt? If this process takes a while, she may be able to get some money together. Can her business be shutdown straight away at any of these stages?

    Thank you in advance for any information you can provide.

    Posted: Oct 28, 2007 By: Janey Member since: Oct 28, 2007
  2. DFL

    DFL UKBF Newcomer Free Member

    Posts: 1,026 Likes: 329
    If it's Corporation tax due then 'she' is operating through a limited company and will not be made bankrupt - the company will go through a compulsory liquidation if it will not / cannot pay the judgement.
    Posted: Oct 28, 2007 By: DFL Member since: Aug 21, 2007
  3. Janey

    Janey UKBF Newcomer Free Member

    Posts: 8 Likes: 0
    Many thanks for your advice.
    Posted: Nov 3, 2007 By: Janey Member since: Oct 28, 2007
  4. Croam

    Croam UKBF Newcomer Free Member

    Posts: 55 Likes: 4
    If I had a pound for every business that asks for help when it's almost too late to do anything...

    I think the best your friend can do is to contract a recovery service company to liquidate the assets and make the most of what she has (if anything!).

    IR are not unreasonable to deal with and if dealt with at the right stages, she could probably have got away with a payment plan of some sort. However, the only thing that can save her is to negotiate providing some sort of evidence that cash will come in soon enough. Another one is try to secure financing of some sort to pay the bill in the short term.

    I don't really know much about the case to give a proper advice but those are some examples.

    I hope everything turns out not to badly for your friend.
    Posted: Nov 3, 2007 By: Croam Member since: Nov 1, 2007
  5. DIY Accounting

    DIY Accounting UKBF Newcomer Free Member

    Posts: 701 Likes: 129
    On a personal basis as already has been stated the corporation tax litigation is a matter for the limited company and does not initially affect your friend on a personal basis.
    It is possible to negotiate with the revenue and reach an agreement on payment terms through the court. However if your friends company cannot pay the corporation tax then technically the company may be considered insolvent and a judgement of this nature could well be sufficient evidence of this which raises a whole raft of other potential problems.
    The main one being that should this judgement be entered and the company considered insolvent then the directors may be personally responsible for any debts they have incurred since the date the company became insolvent.
    The date of insolvency is not necessarily the date of this corporation tax judgement. For example a company that does not pay its rent on time may be considered insolvent.

    Urgent action needs to be taken on several fronts depending on the corporate plan to continue trading or go into liquidation. If trading is to continue then a negotiated settlement of this corporation tax is required. And also the company needs to review all its activities to plan a profitable route forward. Obviously if there is a corporation tax liability then the company has made a net taxable profit in the past and so this may be the way to go.

    If the business is insolvent as opposed to having a cash flow problem then the driectors need to consider their immedaite actions and the effect those actions could have on their personal financial risk.

    Certainly whatever the thoughts the accounts should be up to date and a critical view taken of them in regard to the current balance sheet position and the future prospects for the company, potential risk to the directors and corporate decisions made on the next step which may be debt negotiation, a new business plan, raising new capital or limitation of director risk.
    Unfortunately being a small business you would not have the option Northern Rock took when they had cash flow problems of borrowing £730 from every tax payer in the country.
    That is life - one rule for the government who saw their credibility at risk if they let market forces work and destroy their chances of re-election and another rile for the rest of us.

    But I shouldn't knock Northern Rock since I have good friends there who I know are working their buts off to get it right - people I met when I was part of the team 6 years ago that designed and implemented their treasury management system.

    Terry Cartwright, ACMA, ACIS
    Posted: Nov 3, 2007 By: DIY Accounting Member since: Oct 4, 2007
  6. alisimone

    alisimone UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    It was mentioned that if the company is not able to afford the taxes, then the directors are liable.

    If a company is limited by guarantee, the are not the directors only liable up to that amount.

    The company has no contract and made a loss of over £20k with a previous years tax liability of £4k.

    It has to be dissolved. If there is an objection by the Inspector of taxes then surely it is not the fault of the directors?

    Opinions, experience???
    Posted: Apr 23, 2008 By: alisimone Member since: Apr 23, 2008
  7. DIY Accounting

    DIY Accounting UKBF Newcomer Free Member

    Posts: 701 Likes: 129
    The directors are only personally liable for the company debts if the company trades while insolvent. The directors are not necessarily personally liable for the unpaid taxes however not paying tax or rent by the due date is a potential test of insolvency so if they continue to trade and incur liabilities then they could be judged personally liable.

    A company limited by guarantee protects the shareholders from increased liabilkity in the same way share capital does. It does not affect the responsibility and liability of the directors who continue to trade while insolvent.

    When a company goes into liquidation through insolvency it is rare that the directors are held personally responsible for the company debts and is usually only invoked where creditors take legal action against the directors for carrying out their duties irresponsibly and have continued to increase the liabilities in the knowledge that the company was insolvent. Any creditor including HMRC can take this court action in which they would first need to present proof of an action / date at which insolvency occured and then offer evidence of subsequent liabilities as their claim for re-imbursement from the directors.
    Posted: Apr 23, 2008 By: DIY Accounting Member since: Oct 4, 2007
  8. Philip Hoyle

    Philip Hoyle UKBF Ace Free Member

    Posts: 2,219 Likes: 1,078
    Can they not carry back the loss to the earlier year to wipe out the corporation tax liability? Just a matter of putting the right numbers in boxes of the current and prior year corporation tax return and the problem is solved - the accountant should easily be able to do this if the circumstances are as you state.
    Posted: Apr 23, 2008 By: Philip Hoyle Member since: Apr 3, 2007
  9. alisimone

    alisimone UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    Well the taxes were for the period ending 2006. The next year (ending 2007) there was a £20k loss due to the fact the company had no contracts but earned a miscellaneous payment of about £300 in 2007.

    The self assessment was already done and dusted (so to speak) and therefore valid. In 2007 we included the tax liability of 2006 to further increase the loss for the year but the Tax Authority still says 2006 is due while in 2007 there is no tax due. (If I am making any sense)
    Posted: Apr 23, 2008 By: alisimone Member since: Apr 23, 2008
  10. Philip Hoyle

    Philip Hoyle UKBF Ace Free Member

    Posts: 2,219 Likes: 1,078
    But what does your accountant say? The tax office are quite capable of telling you the wrong thing - they aren't there to give you tax advice. Firstly, the 2006 tax bill is not an expense so should never have been used to increase the 2007 loss. You CAN submit a correcting tax return for 2006 showing the loss carried back from 2007 into 2006, thus reducing 2006 profits and reducing/eliminating the tax due. You do have an accountant don't you? This is the kind of thing that they are there for and why it is worth having one.
    Posted: Apr 23, 2008 By: Philip Hoyle Member since: Apr 3, 2007
  11. alisimone

    alisimone UKBF Newcomer Free Member

    Posts: 3 Likes: 0
    Well I was a bit embarrassed to ask my accountant questions. They simple do an annual "review" of accounts which includes checking invoices, bank statements, calculations etc....

    I wonder if there is a cut off for filing a Corrected tax return. That is an excellent idea. And the most profound statement made was that the Tax Office is not a Tax Advisor.

    I think that is the course I shall take.

    Cheers everyone!
    Posted: Apr 23, 2008 By: alisimone Member since: Apr 23, 2008
  12. Jenni384

    Jenni384 UKBF Big Shot Full Member

    Posts: 4,837 Likes: 1,536
    The whole point of paying an accountant is so you can ask these things, and make sure they are putting you in the best tax position they can!

    Good luck :)
    Posted: Apr 23, 2008 By: Jenni384 Member since: Oct 1, 2007