Compulsory Strike Off- Can the Director draw a line under the company and move forward as a Sole Trader?

[anonymoususer]

Hi everyone,
I'm posting anonymously on behalf of a friend who is completely overwhelmed.
Her limited company has now been compulsorily dissolved after around 3 years of unfiled accounts and confirmation statements.
The company bank account contains approximately £20,000, but there are also likely to be significant outstanding liabilities once all historic accounts and tax returns are eventually prepared. At this stage the exact position isn't known because the accounts haven't been submitted or completed. She has no debts apart from the hmrc liabilities and no employees.
After reading as much as we can, we're wondering whether the correct approach is simply to:
leave the company dissolved rather than restoring it;
accept that the remaining company assets belong to the Crown if that's the legal position;
register as a sole trader for future work only;
invoice all new work as a sole trader with proper bookkeeping and compliance going forward; and
effectively draw a line under the dissolved company rather than trying to revive it.

We're not looking for advice on avoiding liabilities or doing anything improper. We're simply trying to understand whether, in principle, this is a lawful and realistic route, or whether there is something fundamental we're missing.

Has anyone dealt with a similar compulsory strike-off, or can anyone point out any obvious legal issues with this thinking?
Thank you.

 

[NickGrogan]

Can she access the bank account? Generally when the company is dissolved, all assets, including bank accounts belong to the Crown.

If the company is dissolved, there is little benefit in doing any accounts now as there is no company to submit them.

She can start again, but must make clear that she is not the company any more.

 

[anonymoususer]

Can she access the bank account? Generally when the company is dissolved, all assets, including bank accounts belong to the Crown.

If the company is dissolved, there is little benefit in doing any accounts now as there is no company to submit them.

She can start again, but must make clear that she is not the company any more.

No, the bank account is frozen. She's accepted the 20k is essentially gone. The issue she is struggling with is will she get into further trouble by not submitting the accounts as it may look like she was withholding them to avoid a large tax bill?

A second, separate issue is she needs to submit some invoices for work done last month. Is she legally allowed to submit them in her own name as a sole trader now even though the work was completed before the company was struck off?

Thank you!

 

[NickGrogan]

If the company is dissolved, I dont think there is any way of submitting accounts anyway.

Who did the work? Her as a sole trader, or her limited company? She can't bill for work the company did in her own name.
What kind of work is it and who are the customers? Will they know or care that she is a ltd company or not?

 

[anonymoususer]

If the company is dissolved, I dont think there is any way of submitting accounts anyway.

Who did the work? Her as a sole trader, or her limited company? She can't bill for work the company did in her own name.
What kind of work is it and who are the customers? Will they know or care that she is a ltd company or not?

If the company is dissolved, I dont think there is any way of submitting accounts anyway.

Who did the work? Her as a sole trader, or her limited company? She can't bill for work the company did in her own name.
What kind of work is it and who are the customers? Will they know or care that she is a ltd company or not?

It was her who did the work. She always previously submitted invoices as her ltd company and took a salary from it. But all work has always been completed by her. She was a consultant providing niche advice to clients from other businesses. She has a good relationship with them and they won't care what structure she's operating under. She just can't shake the feeling she'll get in trouble for starting over or collecting the invoices in her name!

 

[NickGrogan]

Starting over is fine, but she should put systems in place to make sure accounts and other documents are dealt with properly.

One disadvantage of being a sole trader is that she cannot dissolve the business. She is the business.

Might be better to start a new Ltd company.

When you say she did the work, did the client think she was there as the ltd company and are they expecting invoices from the ltd company? Or did she make it clear the company has closed and its her now?

 

[anonymoususer]

Starting over is fine, but she should put systems in place to make sure accounts and other documents are dealt with properly.

One disadvantage of being a sole trader is that she cannot dissolve the business. She is the business.

Might be better to start a new Ltd company.

When you say she did the work, did the client think she was there as the ltd company and are they expecting invoices from the ltd company? Or did she make it clear the company has closed and its her now?

She has made it clear it's closed and they won't be surprised at all if the invoices are submitted from her personally. I think the issue comes from the fact she completed the work last month when the ltd company was still open. She had no idea it was struck off until yesterday!

 

[NickGrogan]

Should be fine, but she really needs to tighten up on paperwork.

 

[anonymoususer]

Should be fine, but she really needs to tighten up on paperwork.

Thanks so much for your advice! Appreciate it.

 

[WaveJumper]

"A niche consultant for other companies" sounds very much like she needed advice from the get-go on how to run her own company. I am not trying to put her down but some people are not cut out to go it alone, maybe a re-think is in order.

 

[anonymoususer]

"A niche consultant for other companies" sounds very much like she needed advice from the get-go on how to run her own company. I am not trying to put her down but some people are not cut out to go it alone, maybe a re-think is in order.

She doesn't advise them on business matters, I was just trying to protect her anonymity. It's advising on nature based matters which she's very good at. But I completely agree. Moving forward she will be outsourcing all admin related tasks to allow her to focus only on her clients!

 

[Daybooks]

Treat the component items separate and deal with them as you think appropriate.

1. If you want to know whether restoring the company has value then you need to ascertain its correct position. You therefore have to bring all the accounts up to date by getting them prepared as the first step.

2. The company is a separate legal entity. Directors are generally not liable for company debts unless they have given guarantees or acted inappropriately.

3. You are entitled to trade as a sole trader if you wish. Strictly speaking there is no legal requirement to register as a sole trader as there is no Register. The requirement is to complete a tax return when requested or if not requested then advise if you have untaxed income. HMRC’s assertion to register helps you fulfill those obligations by due dates.

4. Whilst you could invoice for the prior work with agreement with the customer the issue would be whether that income legitimately belongs to the company. This is perhaps a factual consideration.

5. As a sole trader why are the accounting records going to be maintained this time when they were not last time? As a guide I would say if you “cannot be bothered” to update the historical records then you probably “cannot be bothered” to maintain them going forward.

Sadly one of the biggest things overlooked in accounting is that it actually tells you how the entity is performing. Why wouldn’t you want to be on top of this?

Some of the issues are legal points so appropriate guidance suggested.

 

[Lisa Thomas]

The frozen cash will now be claimed by Bona Vacantia/The Treasury Solicitor.

The debtor income belongs to the dissolved company, not your friend. If the debtors pay those invoices into the old account then the funds will find their way to BV.

She should think carefully about starting again. It sounds as if the company might have been insolvent if there were substantial unpaid liabilities. If the business wasn't profitable, it would not be wise to start it again without fixing its issues.

As others have suggested, she needs to take proper advice form an accountant about what type of entity to start again in. As a sole trader she will be personally liable for the business debts so if this happens again she could be at risk of personal insolvency, like Bankruptcy, and she could be risking the loss of any personal assets, like property etc.

She definitely needs to do things properly the second time around. She needs to employ an accountant and put proper accounting systems in place. If she doesn't find one on here, I can recommend an accountant.

Bona Vacantia's details are below should she need to speak with them:

Bona Vacantia

‘Bona Vacantia’ means vacant goods and is the name given to ownerless property, which by law passes to the Crown. The Treasury Solicitor acts for the Crown to administer the estates of people who die intestate (without a Will) and without known kin (entitled blood relatives) and collect the...

www.gov.uk

 

[Paul Kelly ICHYB]

Strictly speaking there is no legal requirement to register as a sole trader as there is no Register.

Can you expand on this, as I thought you had to register as self employed if t/o was over £1k?

 

[Daybooks]

The frozen cash will now be claimed by Bona Vacantia/The Treasury Solicitor.

The debtor income belongs to the dissolved company, not your friend. If the debtors pay those invoices into the old account then the funds will find their way to BV.

She should think carefully about starting again. It sounds as if the company might have been insolvent if there were substantial unpaid liabilities. If the business wasn't profitable, it would not be wise to start it again without fixing its issues.

As others have suggested, she needs to take proper advice form an accountant about what type of entity to start again in. As a sole trader she will be personally liable for the business debts so if this happens again she could be at risk of personal insolvency, like Bankruptcy, and she could be risking the loss of any personal assets, like property etc.

She definitely needs to do things properly the second time around. She needs to employ an accountant and put proper accounting systems in place. If she doesn't find one on here, I can recommend an accountant.

Bona Vacantia's details are below should she need to speak with them:

Bona Vacantia

‘Bona Vacantia’ means vacant goods and is the name given to ownerless property, which by law passes to the Crown. The Treasury Solicitor acts for the Crown to administer the estates of people who die intestate (without a Will) and without known kin (entitled blood relatives) and collect the...

www.gov.uk

Would restoration unfreeze the cash? I presume yes, but presumption never wise!

 

[Newchodge]

Can you expand on this, as I thought you had to register as self employed if t/o was over £1k?

There is no self employed 'register'.. You are supposed to tell HMRC, by 5 October after the end of your first financial year, that you are self employed with turnover over £1k. That way they can demand a self assessment. Alternatively you can just issue a self assessment after the end of your first year and before the 5th of the following October. It has the same effect.

 

[Paul Kelly ICHYB]

There is no self employed 'register'

I know that there is no open register like a limited company, but you do still have to register.

 

[Newchodge]

I know that there is no open register like a limited company, but you do still have to register.

You have to register for self assessment, not as a sole trader per se. https://www.gov.uk/become-sole-trader/register-sole-trader

 

[UK Contractor Accountant]

Also need to check whether personal tax returns have been filed with HMRC declaring the drawings from the company bank account split between salary & dividends for the last 3 years.

If starting a Ltd again suggest she engages a Contractor Accountant who will offer a complete package to deal with all filing requirements.

 

[Chris Ashdown]

On a sideline does she do her consulting work for more than one company, I suggest she reads up on how HMRC describes the self employed rules

 

[Daybooks]

Can you expand on this, as I thought you had to register as self employed if t/o was over £1k?

Yes it is simply my interpretation of the law.

HMRC assert you have to ‘register’ or may face penalties. But there is no Self Employed Register so what is this registration? The Taxes Management Act does not stipulate a requirement to ‘register’. It requires you to complete a tax return when the Commissioners request you do or if you have not so been requested to, you have to notify if you have untaxed income. ‘Registering’ in the days of paper tax returns served the purpose of not ‘registering’ but ensuring you were sent the right forms. You could have achieved the same by requesting the form.

If you complete a tax return this year and then decide to earn income from self employment the next and duly complete the self assessment forms all within timeframes, without ‘registering’ then you have met your requirements. If you didn’t complete a tax return last year and were not asked to and then decide to earn income from self employment then you may have untaxed income. You are therefore required to let them know. You can do this by filing a tax return or simply telling them you have untaxed income in which case HMRC will require you to complete a tax return. Job done. This ‘registration’ deadline date is of course the deadline date for notifying of untaxed income.

I have never known any one receive a penalty for not ‘registering’ as there is no requirement. The penalty would be failure to notify of untaxed income.

To be honest my annoyance is the incorrect assertion that you have to register not the underlying effect. A similar issue was the assertion that company directors had to file a tax return. Just use properly contructed sentences.

 

[Daybooks]

.

 

[Lisa Thomas]

Would restoration unfreeze the cash? I presume yes, but presumption never wise!

Yes I believe so (if BV haven't already snaffled it by then), but applicant would need to prove why restoration is required. Given there is £20k in the bank account it might be worth investigating restoration.

OP I can recommend a solicitor to help your friend, if she wants to explore that. She can then put everything right.

 

[DontAsk]

There has long been a requirement to register but it used to be for NI payments. It was required when you started trading but then relaxed to so many months after first year end, or something like that. It's now all just lumped in under self assessment.

 

[Daybooks]

Yes I believe so (if BV haven't already snaffled it by then), but applicant would need to prove why restoration is required. Given there is £20k in the bank account it might be worth investigating restoration.

In practical terms my guess is the bank isn’t going to part with the funds promptly. Therefore restoration might succeed as the funds are no longer homeless; otherwise I would like to think it is still possible but just painful.

If it were me I would want to see the true financial results over the period leading up to this. How else can you decide on the right course of action? The added benefit of course is you get to understand whether continuing in whatever guise is worthwhile or not. Accounts are invaluable.

 

[Daybooks]

There has long been a requirement to register but it used to be for NI payments. It was required when you started trading but then relaxed to so many months after first year end, or something like that. It's now all just lumped in under self assessment.

As you allude, that requirement (Social Security Contributions and Benefits Act) is essentially defunct because of TMA and if you fulfill your duties under TMA then you have in this respect done so for that. The requirement per se for that no longer exists and hasn’t done so for a long time. HMRC should write the requirement factually and not mislead with threats of unsubstantiated penalties. Just my view.

 

[UK Contractor Accountant]

OP I can recommend a solicitor to help your friend, if she wants to explore that. She can then put everything right.

It would be an Administrative Restoration so need for a Court Order to restore company to the Register at Companies House.

Will need the services of an Accountant, however, to prepare and file the outstanding Statutory Accounts, CT Returns & Confirmation Statements.

 

[Lisa Thomas]

Yes, good spot - sorry I've just had a similar one except the company wasn't trading at the time of the dissolution so a Court application was necessary and I forgot this case seems to fit the criteria for Admin restoration instead.

 

[GLAbusiness]

It was her who did the work. She always previously submitted invoices as her ltd company and took a salary from it.

If the company has not got any accounts for 3 years I think there is a good chance she was not running PAYE or otherwise paying tax on her income. In which case her personal tax affairs are also in a shambles