CVL vs Time to Pay

[endoftheroad]

Hi everyone,

I'm the sole director / employee of a small UK limited company (web design, approx 10 years trading) that I was already planning to close. An HMRC compliance check earlier this year revealed I'd been using the wrong VAT Flat Rate Scheme rate since 2017 (14.5% instead of 16.5% as a Limited Cost Trader). This was a genuine error, I was unrepresented when the LCT rules came in and simply missed this important change, I have not been issued with a penalty so far. The compliance check found no other issues and I gave them everything they asked for.

HMRC have assessed approximately £5k in underpaid VAT across the four-year lookback period, with interest on top — the total liability is likely to be around £6,200.

The company has no meaningful assets and it generates enough to cover my salary but has no retained profits or savings. The company has no loans, or other creditors (but it does owe me about 3k in unpaid salary)

My initial response to HMRC was that I accepted there had been an error and that I was committed to finding a solution, however now that I fully understand the numbers, repayment seems much harder then I first thought.

I'm now weighing two options:

Option A — CVL: About £3,000 in practitioner fees, with the debt written off, and a clean closure.

Option B — Time to Pay and keep trading: If I can get together £250/month for 24 months I could probably pay the HMRC debt, plus £1,000/year in ongoing accountancy fees would bring me to about £8,200 total, and I still have to close the company eventually anyway.

I'm calling HMRC's Business Payment Support line Monday to explore TTP before committing either way.
Has anyone been in a similar position? Any reason to favour TTP over CVL given the numbers above, or am I missing something?

I'm honestly mortified about this - I know compared to some other people on this forum these numbers probably seem small. I don't really want to keep the company open for two more years while trying to pay this debt, but I also feel guilt as if it's the right thing to do.

Would really appreciate some advice.

 

[Lisa Thomas]

Option A — CVL: About £3,000 in practitioner fees, with the debt written off, and a clean closure.

I'd be surprised if you could liquidate via a CVL for £3k. Is that the IP' total pre and post fees all in, including VAT?

Or is that what you have been quoted to put it into liquidation - i.e their pre appointment fee only?

A Compulsory liquidation in Court is more likely to be c£3k if you do the application work yourself and don't need a solicitor to help.

Option B — Time to Pay and keep trading: If I can get together £250/month for 24 months I could probably pay the HMRC debt, plus £1,000/year in ongoing accountancy fees would bring me to about £8,200 total, and I still have to close the company eventually anyway.

TTP is usually attractive in order to keep a business going. If you're going to cease trading eventually the might not be worth your time and effort, unless you are keen to pay off the company debts in full.

I'm not entirely sure you need to pay to liquidate the company, if it has insufficient assets to cover the liquidation costs. It might be better to dissolve it (see below).

I'm assuming there are no employees, no assets to deal with, and no other material creditors.

Happy to chat to you abut this in more detail if that helps, although it sounds as if you might have already spoken with an IP to get the £3k quote.

Strike off your limited company from the Companies Register

How to close down your limited company by getting it struck off the Companies Register

www.gov.uk

 

[Gyumri]

Its clear rhat you can't simply apply to dissolve (strike off) the company because you must pay all Corporation Tax and any other outstanding tax liabilities. So the only option if HMRC insists on receiving its pound of flesh quickly (I would offer three years TTP take it or leave it) is to do nothing except file dormant accounts at the end of the year if you feel up to it, and just start a new company.

 

[Newchodge]

Its clear rhat you can't simply apply to dissolve (strike off) the company because you must pay all Corporation Tax and any other outstanding tax liabilities.

Really? HMRC may object to the strike off, but if there is no money available, they will let it go through eventually.

 

[Lisa Thomas]

Its clear rhat you can't simply apply to dissolve (strike off) the company because you must pay all Corporation Tax and any other outstanding tax liabilities. So the only option if HMRC insists on receiving its pound of flesh quickly (I would offer three years TTP take it or leave it) is to do nothing except file dormant accounts at the end of the year if you feel up to it, and just start a new company.

I disagree. If the company cannot afford liquidation, the director/s can follow the dissolution procedure by sending notices to the creditors etc per the link I included above.

HMRC will object but eventually, assuming HMRC don't liquidate themselves, the objection will be lifted and Companies house will strike the company off.

 

[endoftheroad]

Thanks for the replies everyone...

From what I have researched, HMRC are unlikely to agree to a multi year TTP option - even though this is all I can afford. (EG £250 per month x 24 months get me to 6k)

My company is a one man band, and makes enough for me to live on. The company is also viable, the issue is that I have a debt that can't be paid the the time frame requested.

Therefore I feel the strike off, although unfortunate is the only financial option that makes sense.
CVL might be cleaner but still costs money I don't have.

Also been reading about Phoenixism (yes I'm down the rabbit hole) and trying to work out how I keep working without further investigation or incrimination !

 

[Newchodge]

Thanks for the replies everyone...

From what I have researched, HMRC are unlikely to agree to a multi year TTP option - even though this is all I can afford. (EG £250 per month x 24 months get me to 6k)

My company is a one man band, and makes enough for me to live on. The company is also viable, the issue is that I have a debt that can't be paid the the time frame requested.

Therefore I feel the strike off, although unfortunate is the only financial option that makes sense.
CVL might be cleaner but still costs money I don't have.

Also been reading about Phoenixism (yes I'm down the rabbit hole) and trying to work out how I keep working without further investigation or incrimination !

If the company has no tangible assets then Phoenixism seems unnecessary. Just open a new company! Or dissolve the company and work as a sole trader.

 

[Paul Kelly ICHYB]

If you are happy with offering TTP and they do not accept, that would, in real life, be unreasonable. Then consider closing the business.