HMRC CT debt - unsure how to proceed

[MrOranges]

Hello,

I think I am the point now - or likely past it - that my business is in a serious struggle with debt. The most concerning is ~£37k in outstanding CT (multiple years) that HMRC sent me a letter about this month. I haven't spoken to them yet and the business certainly can't pay the full amount. There is £14k in the business account. The company is still trading and turnover is ~£100k a year and I am paranoid that I am now trading while insolvent or committing some sort of fraud and I don't know what to do now. The root of this is my chronic disorganisation, naivety and misunderstanding of finances. Years ago our original accountant recommended we set up a company so that we would pay less tax. When we moved house we started with a new accountant and since then everything has become very complicated (to me) and overwhelming. At some point I have ended up with a director's loan - which I don't understand and my accountant has failed to explain it to me and I am gathering is a bad thing to have. Accounts have always been done in a rush and late but are up to date.

The company also owes ~7k remaining BBL and ~6k remaining on a loan from another business (family). Repayments for these have always been made. The company has no assets beyond two computers and a printer.

The company consists of myself and my partner as the only shareholders/directors/employees. We are both in personal IVAs (year 3 of 5, all up to date).

I am now not sure who to speak to and in what order (an IP, HMRC, my accountant etc.). If there's any way I can keep the company going and somehow satisfy HMRC that the debt can be paid then I would prefer to do that but I suspect it's too late and now I am panicking and very ashamed to be in this position.

thank you

 

[DWS]

First port of call should be your Accountant who should be able to explain things.
Why did you change accountant in the first place?

 

[WaveJumper]

Sounds like you need to sit down with your accountant and don't leave their office until you fully understand where your business stands, as a director its your responsibility at the end of the day.

 

[Lisa Thomas]

Hello

Thank you for sharing your predicament with the forum. There is nothing to be ashamed of.

The best advice I can give is for you to speak to your accountant and a licensed insolvency practitioner as to the best options going forward. I'd be happy to chat to you, and no doubt as would the other Insolvency Practitioners on this forum.

Depending on the company's position, it might be best to try and reach a 'Time To Pay' agreement with HMRC (please note I believe they are starting to get more insistent that payments are made within 12 months, but I am still hearing of some companies negotiating a longer repayment term). Alternatively a formal insolvency procedure could be more appropriate.

I would need more information to be able to advise.

Insolvency doesn't have to mean the end for the company. It might mean a rescue of the business via a procedure known as a CVA, or a phoenix liquidation might be suitable.

Both procedures are explained in my video here:

The different options for insolvent limited companies with Covid related and other debts In this jampacked video, I explore the following options available for insolvent limited companies: Compulsory Liquidation, Creditors Voluntary Liquidation (... youtu.be In addition I also cover the different types of misconduct directors tend to committed when their company is insolvent, which you have hinted at.

 

[numbersrule]

Please note I am not an Insolvency Practitioner and have no experience with this type of situation but I am intrigued regarding the following point.

The Corporation Tax is the only significant debt. If it wasn't for the CT, the position looks relatively manageable. So, in order to understand a way out of this it will be important to understand what the CT Debt is made up of and how it has got so far out of control. For example, with 100k T/O my guess is that your annual CT Bill may be about 3k. So how much of the 37k comprises interest and penalties? It seems to me that HMRC should have brought this to a head long ago, so why haven't they and are HMRC partly to blame for not forcing a repayment plan before now?

I agree with the other posters about talking to your accountants and an IP but equally the sooner you also start a dialogue with HMRC the better.

 

[ChrisCallaghan]

Hi @MrOranges ,

My apologies for coming to this thread a little late. I would echo @Lisa Thomas 's thoughts, and that she will advise you well should you take her up on her offer to talk things through. Should you need a 2nd opinion for any reason, please find my contact details in my post signature. I hope things go well!

 

[Elliot Green]

Hello,

I think I am the point now - or likely past it - that my business is in a serious struggle with debt. The most concerning is ~£37k in outstanding CT (multiple years) that HMRC sent me a letter about this month. I haven't spoken to them yet and the business certainly can't pay the full amount. There is £14k in the business account. The company is still trading and turnover is ~£100k a year and I am paranoid that I am now trading while insolvent or committing some sort of fraud and I don't know what to do now. The root of this is my chronic disorganisation, naivety and misunderstanding of finances. Years ago our original accountant recommended we set up a company so that we would pay less tax. When we moved house we started with a new accountant and since then everything has become very complicated (to me) and overwhelming. At some point I have ended up with a director's loan - which I don't understand and my accountant has failed to explain it to me and I am gathering is a bad thing to have. Accounts have always been done in a rush and late but are up to date.

The company also owes ~7k remaining BBL and ~6k remaining on a loan from another business (family). Repayments for these have always been made. The company has no assets beyond two computers and a printer.

The company consists of myself and my partner as the only shareholders/directors/employees. We are both in personal IVAs (year 3 of 5, all up to date).

I am now not sure who to speak to and in what order (an IP, HMRC, my accountant etc.). If there's any way I can keep the company going and somehow satisfy HMRC that the debt can be paid then I would prefer to do that but I suspect it's too late and now I am panicking and very ashamed to be in this position.

thank you

Hi - you say you don't under the director's loan account position.

In simple terms, an *overdrawn* director's loan account ("ODLA") is explained in a video here

- YouTube

Enjoy the videos and music that you love, upload original content and share it all with friends, family and the world on YouTube.

youtu.be

It is worth keeping in mind that if indeed you have an ODLA then there can potentially be implications for both you and the company, so it is worth getting advice to try to sort it out.

If you have an ODLA, it is an asset of the company and a director who has one of these has a liability to repay it to the company. In generally terms until or unless an ODLA is repaid then the company does not get back its extra tax under Section 455 of the Corporation Tax Act 2010 it paid over to HMRC.

Please note the disclaimer in the signature section and that this is not legal advice and is not to be relied upon. It is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

 

[Porky]

@MrOranges
Hope you are well, please don’t stress, I know it’s easy for me to say that but don’t. There is nothing here that’s insurmountable, you just need help getting it sorted out and trust me on this; there are thousands of businesses a year in this situation and many far worse than you!

If you haven’t done so already pick the phone up and talk to @Lisa Thomas she knows what she’s talking about and an informal chat costs nothing at this stage. If you ultimately go down the IP route it’s a process. But Don’t stress, I know it will be on your mind 24/7 but you will soon get on the other side of this.This really is no big deal.

Before you appoint an IP the thing I would focus on if you can is clearing your DLA, that is personal debt you owe, not business debt. if you owe the business money get it repaid, if you are on PAYE, pay yourself and leave the cash in to clear it or draw as wages and repay it as DLA settled. The other elements are all business debts that will go down with the business. The BBL can cause a headache as some banks try to recover from you personally but I know loads of situations where they don’t and they won’t get any joy there anyhow.

Legally I think the official line is you can’t favour one debt over another but you do have some cash left, you will need probably £5k for IP costs and if the family company happen to demand their £6k and you pay it, well that’s that, once you appoint an IP what is left in the bank account at that point will be taken and everything by the book.

Prior to appointing an IP you can discuss what you like confidentially, but most important, you are not to stress you can get this sorted - it’s not that big a deal. You could look at restructure or look at starting something else if you wanted to.

Finally, you could save yourself IP fees doing it yourself via the Sponge Bob plan but personally, in the circumstances you outline I would use an IP, let them deal with it, the revenue, bank and anyone else and get this business dissolved ASAP but talk through the options.

Good luck

 

[Lisa Thomas]

Thank you for recommending me, Porky.

 

[Porky]

Thank you for recommending me, Porky.

Least I can do Lisa, you clearly know your profession inside out, good luck to you.
Pork’s