Cannot afford pending corporation tax bill

DanGB · Apr 16, 2019

Hi all,

I think I have a fairly simple case here, but looking for the best way forward.

I have a single person Ltd company, contractor type business.

I am in this situation as had to write off over £13,500 of bad debt from my biggest customer going into administration, and no dividends available for creditors. Was taking a salary last year hence low bank balance now.

-Last invoice was 31st Dec 2018 and the payment was received Feb 2019.
-No trading since then, only activity has been bank and accounting changes coming from the bank account and a few other costs.
-Last financial year up 31 July 2018 - Corp tax due by 30th April will be £1533
-Bank balance currently about 1100.
-Companies house Accounts need to be filed by 30th April.
-No directors loan account
-Havent taken any salary for over 3 months.
-Come 30th April HMRC will be the only creditor.

So in summary, corp tax bill due 30th April will be £1533. Company only has around £1100 cash with no more income due.
Should I take any Salary out before then?

I am happy to close the company down if that would be best course of action. Have been reading the Spongebob plan.

Any advice welcome. Thanks.

Scalloway · Apr 17, 2019

DanGB said:
Should I take any Salary out before then?

No. That could be construed as an illegal preference.

Lisa Thomas · Apr 17, 2019

You should take advice from an IP to explore the options for the Company.

It seems that dissolution might be the best way forward, but expect HMRC to object:

https://www.gov.uk/strike-off-your-company-from-companies-register/apply-to-strike-off

MikeJ · Apr 17, 2019

If you're writing off £13500, does this mean you'll make a loss this year?

An accountant needs to advise here, but doesn't that mean he can carry back the loss and reduce his previous tax bill?

DanGB · Apr 17, 2019

MikeJ said:
If you're writing off £13500, does this mean you'll make a loss this year?

An accountant needs to advise here, but doesn't that mean he can carry back the loss and reduce his previous tax bill?

Thanks for the reply. Even with the 13500 of bad debt, there is still a net income of around 8000 hence the corporation tax liability for that year.

MikeJ · Apr 18, 2019

But you'd reduce the corporation tax by over 50%, to a point where it's payable from your current cash level.

DanGB · Apr 18, 2019

MikeJ said:
But you'd reduce the corporation tax by over 50%, to a point where it's payable from your current cash level.

Hi Mike,

I would grateful if you could explain a bit more about that point?

Thanks!

MikeJ · Apr 19, 2019

Was the £13,500 in last year's figure or this year's?

If it's last year's, then you've effectively overstated your profit by £13,500, and therefore your corporation tax is about £2600 higher than it should be (assuming you're paying 19%). If your bill is £1500, I'd assume that £13500 loss would wipe out any profit.

If it's this year's, are you likely to make a profit? If not, then any loss can be carried back to last year and used to reduce your corporation tax bill.

(I'm not an accountant. It would be worth you speaking to one though)

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Cannot afford pending corporation tax bill