Company dissolution and self assessment

[quainoz]

Hi all,

I am seeking advice with regard to a difficult situation. I worked as a contractor and set up an ltd. However, I stuck my head in the sand and did not face up to my responsibilities. I did not file returns or accounts. I did not even open mail (I am seeking mental health support as this is not normal behaviour).

The company has been informally dissolved. I opened my mail last week. Looking at records it seems the 1st attempt was protested (most likely by my only creditor HMRC) but they did not object the 2nd time and the company was struck off.

I have identified another issue. Without thinking about it I paid myself monthly, which I need to declare. However, I now realise after reading this forum that this most likely constitutes an overdrawn DLA. How do I address this for purposes of self assessment?

In my naive head I considered these payments dividends. The payments were 2k a month. Do I declare them as such?

Thanks.

 

[Scalloway]

They can only be dividends if the company declared them at a directors meeting properly minuted. You can't go back now and rewrite history.

I would include it on your tax return as Other Taxable Income.

 

[quainoz]

Thankyou for your reply. If I declare as 'Other Taxable Income' will they investigate?

 

[Scalloway]

From what I gather from other posts on here they are more likely to investigate if you don't declare it.

 

[Spongebob]

I did not even open mail (I am seeking mental health support as this is not normal behaviour)..

Believe me, not opening mail is extremely normal - or at least common - behaviour when facing the stress of insolvency.

 

[quainoz]

Thanks Spongebob.

I guess I am worried that the way I account for income in my self assessment will affect whether it gets flagged to other HMRC offices, increasing the likelyhood of the company being reformed with the personal liability this will illicit. I was just overwhelmed and so <frozze>.

In doing so I f***ed myself.

 

[Scalloway]

From other posts here it appears that where Companies House have overridden HMRC's objections and struck the company off HMRC have issued assessments for tax on unpaid DLAs. If you declare it on your self assessment and state what the income is I cannot see them having any reason to come back to you.

 

[quainoz]

Thanks for the advice Scalloway. I guess being honest in this situation is the best policy. If I pay the income tax at least my personal tax affairs will be in order whether they come back for a bite of the cherry or not.

 

[Newchodge]

Which tax year does it relate to?

 

[Spongebob]

There appears to be plenty of anecdotal evidence that HMRC have changed their attitude to very small companies facing insolvency.

A few years ago they would routinely wind up such companies and hope that the Official Receiver would be able to pay a dividend from the liquidation of the assets. I guess this policy went back to the days when HMCE and IR were preferential creditors.and got first dibs after the OR took his fees.

It is my suspicion that HMRC has increasingly found that it gets little or nothing via a compulsory liquidation - this after going to the expense of a Winding Up Order.

I further suspect that they now favour allowing the company to be struck off and then chasing the director for tax on any "dividends" he had received in the months or years prior to the company's demise.

It would be very difficult for a director to purport that payments made by the company to himself were truly dividends supported by retained profits when the company became insolvent shortly afterwards.

It would also be very foolhardy for him to attempt to conceal them from HMRC.

 

[STDFR33]

I am going to say that the overdrawn DLA is not taxable.

I wouldn't not include the amount in your self assessment tax return.

 

[quainoz]

According to advice on .gov.uk written off Directors Loans are taxable under income tax. Since the company is disolved the DLA is by default 'written off' so I will add to self assessment. If I don't and they investigate. I would be clobbered. At least this way I am being honest about the funds received and paying tax on it.

 

[STDFR33]

You have not interpreted the .Gov advice correctly.

The amount has not been written off.

My opinion is that the sum is not taxable.

If you wish to contribute unnecessary funds towards the NHS etc, that is your prerogative.

 

[STDFR33]

For anyone else reading this that has private health care and home security...

My opinion is that where a company has been struck off with an overdrawn directors loan outstanding on the balance sheet, a write off has not taken place.

A loan write off is not defined in s415 ITTOIA 2005. See here:-
https://www.legislation.gov.uk/ukpga/2005/5/section/415


Although now archived content, my opinion is reinforced by HMRC here:
http://webarchive.nationalarchives.gov.uk/20140207054901/http://www.hmrc.gov.uk/manuals/insmanual/ins44180.htm
Where it states:
If the company is struck off without any formal decision then the loan cannot be assessed.

 

[UK Contractor Accountant]

If the company is struck off without any formal decision then the loan cannot be assessed.

..... but it does become an asset due to be paid over to the Treasury Solicitor!

Pay the tax on it or repay the whole lot to the Treasury Solicitor- which would you prefer!

 

[STDFR33]

..... but it does become an asset due to be paid over to the Treasury Solicitor!

Pay the tax on it or repay the whole lot to the Treasury Solicitor- which would you prefer!

In my opinion the loan was never written off. It has not been written off by default of dissolution.

The company can't now write the loan off as it doesn't exist.

So what would you suggest happens now?

 

[Spongebob]

Interesting...

It seems that HMRC cannot assess the loan as income for tax purposes if the company is struck off.

I've never heard of the Treasury Solicitor chasing up assets of dissolved companies. Has anyone else?

It looks like the Spongebob Plan might be even more powerful than we thought.

 

[STDFR33]

Interesting...

It seems that HMRC cannot assess the loan as income for tax purposes if the company is struck off.

I've never heard of the Treasury Solicitor chasing up assets of dissolved companies. Has anyone else?

It looks like the Spongebob Plan might be even more powerful than we thought.

I'm only a person on the internet.

It might be that I am talking completely out of my bum hole.

 

[UK Contractor Accountant]

I've never heard of the Treasury Solicitor chasing up assets of dissolved companies. Has anyone else?

Its the Directors responsibility to send the assets up just like the banks do when a company is struck off.

In most cases its gone down as dividends anyway (legal & illegal dividends) so it should be included on the Directors personal Tax Return

 

[Spongebob]

Its the Directors responsibility to send the assets up just like the banks do when a company is struck off.

I'd love to know whether in the history of limited companies any former director has ever done this. I doubt it.

In most cases its gone down as dividends anyway (legal & illegal dividends) so it should be included on the Directors personal Tax Return

If the former director includes payments from the company as dividends on his tax return they won't be taxed as income. How will HMRC know whether they are proper dividends or unjustified dividends?

 

[STDFR33]

For tax purposes, the recipient of the dividend is taxed accordingly on said dividend.

It doesn't matter if the dividend was legal or illegal.

 

[Newchodge]

What director? If the company has been struck off, it has no directors.

 

[UK Contractor Accountant]

For tax purposes, the recipient of the dividend is taxed accordingly on said dividend.
It doesn't matter if the dividend was legal or illegal.

I think this was one of the main reasons HMRC decided to tax dividends from the 6 April 16 so they get some money back in from the Director/shareholder when companies are dissolved with no accounts filed etc.

It's cheaper than having to go down the winding up route and getting the Official Receiver to chase overdrawn DLA's.

 

[Spongebob]

So if you're a director of a small limited company which is heading for the rocks owing money to HMRC you might as well pay any cash kicking around to yourself before ceasing trading...

...in the safe knowledge that no liquidator will ever be appointed to investigate and that in the worst case you will only have to pay a small percentage of the money in tax!

 

[UKSBD]

In my opinion the loan was never written off. It has not been written off by default of dissolution.

The company can't now write the loan off as it doesn't exist.

So what would you suggest happens now?

Would that also apply to money another person owes the ex company?

ie.
If you don't pay an invoice and the company who issued the invoice is dissolved, does the invoice die with the business?

 

[UK Contractor Accountant]

https://www.taxation.co.uk/articles/2010/10/13/21125/insolvency-investigation

 

[STDFR33]

It's different, but essentially yes. If a company that you owed money to gets dissolved, you cannot pay what you owe as the company no longer exists.

 

[STDFR33]

https://www.taxation.co.uk/articles/2010/10/13/21125/insolvency-investigation

I can't read the article, unfortunately. It states that it is for subscribers only.

 

[UKSBD]

I can't read the article, unfortunately. It states that it is for subscribers only.

View the Google cache of it

 

[STDFR33]

View the Google cache of it

What's that? How do you do it on a phone?

 

[UKSBD]

Put the link in here - http://www.sim64.co.uk/cache/

 

[Spongebob]

https://www.taxation.co.uk/articles/2010/10/13/21125/insolvency-investigation

 

[Spongebob]

I read that article and one thing puzzles me.

Apparently the bloke entered an IVA which failed and he went bankrupt. When you go bankrupt all your debts are cancelled, even ones which you don't know about or which have not materialized.

So how can HMRC claim that he owes tax?

 

[Newchodge]

Spongebob, Spongebob. When did you start to believe that HMRC understands the law?

 

[Spongebob]

This is probably why they are attempting to put the tax liability in a subsequent tax year - to post-date the bankruptcy. Which of course, is complete rubbish. If the tax liability relates to monies received prior to his bankruptcy, the tax liability must also have arisen prior to his bankruptcy..

Therefore, it no longer exists.

My dealings with HMRC are few and far between. Are they really that thick?

 

[STDFR33]

Are they really that thick?

No. They're worse.

 

[quainoz]

I am still a little confused. Should I book the DLA to dividends? I need to do something. My worry is that if I log dividends then the revenue will ask me to produce records supporting my claim, which is why I consider honesty being the best policy in this situation. If I lie I will just dig a bigger hole for myself.

In other news PAYE chased me threatening to send the knee breakers round. 5 minutes on the phone and the record was closed, penatlies cleared.

 

[UK Contractor Accountant]

My worry is that if I log dividends then the revenue will ask me to produce records supporting my claim

they would be more interested if you did not include dividends on your Tax Return.

If you want to declare the money drawn just enter on your Tax Return as dividends from UK companies.

 

[Mr D]

Interesting...

It seems that HMRC cannot assess the loan as income for tax purposes if the company is struck off.

I've never heard of the Treasury Solicitor chasing up assets of dissolved companies. Has anyone else?

It looks like the Spongebob Plan might be even more powerful than we thought.

Just had a reply from treasury solicitors last week, they will disclaim its interest in remaining stock from when company dissolved in May. Not normally sell assets where its not cost effective to do so is the phrase used.

 

[Mr D]

My dealings with HMRC are few and far between. Are they really that thick?

Have had plenty of experience dealing with them both professionally and personally. Can answer that question.
YES.