Advice Needed Please

[Keith Duffy]

Hi, looking some advice. Thanks to IR35 I can’t get any work for my Ltd Company any more. Been looking into Insolvency as a last resort but I’ve been very naive with my accounting. I’ve paid an accountant since the business was formed 5 years ago and every time I’ve asked about my DLA been told the business owes me. Company accounts were done recently and there’s a large amount of retained profits in the balance sheet and this has been increasing year on year.
It’s completely my fault for not paying attention but I assume in any insolvency these retained profits would be seen as an asset of the company and pursued by the creditors? I owe HMRC, a BBL and have an overdraft.
Im working in the same industry on a salaried basis and realise morally these are my debts so prepared to pay just looking for advice about whether anIP would want the full amount (circa 38k) at once which is impossible or would they accept a payment plan to cover the full amount in 5 years. I can’t afford to pay the full amount in one go.
I’ve spoken to firm who basically suggested paying 6.5k and all my problems would disappear which sounded to good to be true and ethically dubious. The company is registered in Scotland

 

[Chris Parkman]

To Keith

Thank you for your email and be aware that Scottish Law is different to English Law when it comes to insolvency.

The issue will not be retained profits, but the balance on your loan account, if there is any.

 

[Keith Duffy]

Hi Chris,
Thanks for your prompt response - when the accounts were submitted my loan account was in credit by a small amount. So my only liability would be if the Loan Account were outstanding ?
Thanks again
Keith

 

[Chris Parkman]

Assuming that you had not breached your fiduciary duty, or caused the Company a loss, your liability to the Company, should be limited to the overdrawn balance, if any, on your loan account.

 

[UK Contractor Accountant]

I owe HMRC, a BBL and have an overdraft.

how much?

Any C/tax outstanding - have accounts prepared up to the cessation date showing c/tax for the final period?

Seems to me you have an overdrawn Director Loan Account if bank & tax debts are the only thing remaining on the company. Possibly due to illegal dividends being taken.

 

[Keith Duffy]

how much?

Any C/tax outstanding - have accounts prepared up to the cessation date showing c/tax for the final period?

Seems to me you have an overdrawn Director Loan Account if bank & tax debts are the only thing remaining on the company. Possibly due to illegal dividends being taken.

That’s what I’m concerned about - I’ve not really paid much attention. BBL is 11k, OD 5k, 5& Corp tax o/s from last year and 4 due next year. Had enough work to cover all this but companies I work for all decided to stop employing Ltd Company contractors in may this year so stuck

 

[Chris Parkman]

If you do have an overdrawn loan account, you could agree a payment plan with the liquidator to repay it over a period.

 

[Keith Duffy]

how much?

Any C/tax outstanding - have accounts prepared up to the cessation date showing c/tax for the final period?

Seems to me you have an overdrawn Director Loan Account if bank & tax debts are the only thing remaining on the company. Possibly due to illegal dividends being taken.

I’ve been looking at this illegal dividends issue, I haven’t taken any money out of the business once I realised I’d struggle to get more work and have been putting my own money in to cover BBL payments and OD interest etc. If I took the dividends out believing the business would have enough income to cover them are they still classed as illegal ? As I said I had work arranged and that would have covered the vast majority of the debts

 

[UK Contractor Accountant]

As I said I had work arranged and that would have covered the vast majority of the debts

that's the problem - trying to pay past debts from future earnings is normally an indication of illegal dividends having been drawn.

Dividends would ideally needed to be supported by monthly management accounts showing sufficient retained after tax profits to cover the dividend payment.

 

[Keith Duffy]

that's the problem - trying to pay past debts from future earnings is normally an indication of illegal dividends having been drawn.

Dividends would ideally needed to be supported by monthly management accounts showing sufficient retained after tax profits to cover the dividend payment.

I didn’t pay dividends monthly my accountant sorted everything out at the end of the year, I never looked into it very deeply to be honest just paid whatever the tax bills were. I would have had enough to cover the corp tax on my projected work by the end of my financial year and the company debts would have been massively reduced.
Regretting not questioning my accountant more now tbh

 

[UK Contractor Accountant]

Does the last Balance Sheet you have show negative retained reserves?

 

[Keith Duffy]

T

Does the last Balance Sheet you have show negative retained reserves?

The Capital and Reserves of the balance sheet shows 37k negative

 

[UK Contractor Accountant]

The ,£37K as a rough rule of thumb is your overdrawn DLA balance.

Any IP appointed will chase repayment of this sum depending on Personal asset/income position

 

[Keith Duffy]

The ,£37K as a rough rule of thumb is your overdrawn DLA balance.

Any IP appointed will chase repayment of this sum depending on Personal asset/income position[/QUOTE
Welll it’s money I owe so happy enough to pay it hope i can sort something out, working as a contractor isnt an option anymore but still in same field earning decent money so can clear it in 3 years - wondering what to do for the best now, would IP be more sympathetic if I pay fee and start ball rolling

 

[UK Contractor Accountant]

Can always wait and see if Companies House Strikes the company off without the need to appoint an IP.

Just file no documents when due and CH will start the removal process themselves.

 

[Lisa Thomas]

The DLA will still need to be declared on your personal tax return

 

[UK Contractor Accountant]

he DLA will still need to be declared on your personal tax return

only if the illegal dividends are reclassified as DLA.

 

[Keith Duffy]

Can always wait and see if Companies House Strikes the company off without the need to appoint an IP.

Just file no documents when due and CH will start the removal process themselves.

Won’t HMRC issue winding up notices before then

Can always wait and see if Companies House Strikes the company off without the need to appoint an IP.

Just file no documents when due and CH will start the removal process themselves.

only if the illegal dividends are reclassified as DLA.

Hi, looking some advice. Thanks to IR35 I can’t get any

only if the illegal dividends are reclassified as DLA.

Hi, looking some advice. Thanks to IR35 I can’t get any work for my Ltd Company any more. Been looking into Insolvency as a last resort but I’ve been very naive with my accounting. I’ve paid an accountant since the business was formed 5 years ago and every time I’ve asked about my DLA been told the business owes me. Company accounts were done recently and there’s a large amount of retained profits in the balance sheet and this has been increasing year on year.
It’s completely my fault for not paying attention but I assume in any insolvency these retained profits would be seen as an asset of the company and pursued by the creditors? I owe HMRC, a BBL and have an overdraft.
Im working in the same industry on a salaried basis and realise morally these are my debts so prepared to pay just looking for advice about whether anIP would want the full amount (circa 38k) at once which is impossible or would they accept a payment plan to cover the full amount in 5 years. I can’t afford to pay the full amount in one go.
I’ve spoken to firm who basically suggested paying 6.5k and all my problems would disappear which sounded to good to be true and ethically dubious. The company is registered in Scotland

thanks for all your responses - looks like I may have found a solution, a Turkish company is happy to employ me via my Ltd Company on a 4 year project so I will be able to sort out the finances of the company, be a lean year for me personally next year but will clear everything

 

[Lisa Thomas]

only if the illegal dividends are reclassified as DLA.

Thanks so declared with way though, as DLA or dividends, I think?