Limited company no BBL, spongebob

[Surrey_bloke]

Good morning folks,

I have a limited company and it's been running for around 18 months, it's VAT registered and I've paid all my VAT and PAYE (low salary, dividends) to date. However due to my contract ending and no new work I've run out of money and in a mess. I owe around 28k in corp tax (I had almost no expenses), due next year and have taken money out to pay my personal bills etc on top of dividends. I do the accounts myself to save accountant fees and now the company has no cash.

I have no BBL or any other creditors other than the CT I owe. I haven't submitted any returns other than VAT ones and all paid up. Should I submit anything or just apply to be dissolved via companies house? What happens to the CT debt, am I liable personally, I think not given it's a limited? Also what about the money I took out, is this now classed as a directors loan and is it also written off when the company is dissolved?

I rent my home and have no other cash otherwise I would try and make it right. I just want to know when the company gets dissolved im clear of all this mess?

Thanks for any assistance in this matter.

 

[ChrisCallaghan]

Hi @Surrey_bloke ,

Welcome to UKBF!

Should I submit anything or just apply to be dissolved via companies house?

Firstly you need to have ceased to trade for a minimum of 3 months before making the application. You will also have to notify any creditors (so HMRC in your case) within 7 days of making your application. Failure to do so is an offence, and the Insolvency Service are regularly seeking director ban orders, and even prosecution, for failure to adhere to these two points.

Full guidance and a link to the form (DS01) can be found at the below:

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

Once you have made the application and it has been processed by Companies House, it will then be listed for a minimum of two months before it can go through - within this window, HMRC (or any other creditor) has the right to object to this process. If they object, they can (and will) continue with any debt enforcement activity.

What happens to the CT debt, am I liable personally, I think not given it's a limited?

You are not personally liable for this debt - if the company is successfully struck off, this amount is effectively written off. However, given the amount you've stated, I think it is highly likely that HMRC will object.

Also what about the money I took out, is this now classed as a directors loan and is it also written off when the company is dissolved?

This is not a debt of the company - this is an asset. If the company is successfully dissolved, then you will have to declare this amount as an income on a self assessment tax return.

I just want to know when the company gets dissolved im clear of all this mess?

Difficult to say! As mentioned, I think it is likely that HMRC will object in your case, but it is still worth attempting. If they do object, you will then have two options:

1. Wait for HMRC to start winding up proceedings (if you are following the Spongebob guide, you will have invited HMRC to do this from the template letter provided)
2. Considering instructing an insolvency practitioner for a Voluntary Liquidation.

Alternatively, if you wanted absolute certainty, you could explore a voluntary liquidation now, rather than the Spongebob guide. Myself (or any of the insolvency regulars here on UKBF) would be happy to offer you free guidance and quotations for services on this option.

Have you explored a voluntary liquidation before considering the Spongebob option?

 

[DWS]

So what happened to the £28k that you owe in C/Tax?

 

[Surrey_bloke]

Thanks for your reply, how would HMRC know I owed anything without submitting an annual return or about the "asset" directors loan? I read a few older threads on this and it seems these things just disappear when you dissolve, I know if you have a BBL it's different but I don't have one.

 

[Surrey_bloke]

So what happened to the £28k that you owe in C/Tax?

I had to use it to pay for things, hoping I would save it back up but contract ended before I could do that. I know it was silly of me however no use crying over spilt milk, looking for solutions now.

 

[ChrisCallaghan]

So what happened to the £28k that you owe in C/Tax?

He's answered that question:

and have taken money out to pay my personal bills etc on top of dividends

 

[DWS]

He's answered that question:

So he has, so now he owes the Company the £28k and when he pays it back he can then pay the C/Tax owed.

 

[ChrisCallaghan]

Thanks for your reply, how would HMRC know I owed anything without submitting an annual return or about the "asset" directors loan? I read a few older threads on this and it seems these things just disappear when you dissolve, I know if you have a BBL it's different but I don't have one.

Both good questions. HMRC can object for this very reason - that accounts have not been submitted, and that HMRC suspect they may be a creditor. As I've stated, I still think it may be worth the attempt and may even go through - just ensure that you keep to the strict guidance of waiting till you've ceased to to trade for 3 months and inform HMRC of your application within 7 days of filing a DS01, and then keep an eye out for any objections at Companies House.

As for how the director loan would be treated if your company was successfully dissolved - the answer remains the same: you have personally received un-taxed income from this company, which should be declared on a self assessment tax return. It is up to you if you choose to do this or not.

 

[Surrey_bloke]

So he has, so now he owes the Company the £28k and when he pays it back he can then pay the C/Tax owed.

That's not an option im afraid, if you read my post properly it explained all that.

 

[ChrisCallaghan]

So he has, so now he owes the Company the £28k and when he pays it back he can then pay the C/Tax owed.

Of course you are correct from a simple equation way of looking at this, but the reality is that he does not have this money. To quote OP:

no use crying over spilt milk, looking for solutions now.

 

[Surrey_bloke]

Both good questions. HMRC can object for this very reason - that accounts have not been submitted, and that HMRC suspect they may be a creditor. As I've stated, I still think it may be worth the attempt and may even go through - just ensure that you keep to the strict guidance of waiting till you've ceased to to trade for 3 months and inform HMRC of your application within 7 days of filing a DS01, and then keep an eye out for any objections at Companies House.

As for how the director loan would be treated if your company was successfully dissolved - the answer remains the same, You have personally received un-taxed income from this company, which should be declared on a self assessment tax return. It is up to you if you choose to do this or not.

Thanks Chris, you have been very helpful. I'll endeavour to be careful if I open another Limited company.

 

[ChrisCallaghan]

Thanks Chris, you have been very helpful.

Happy to be of help. If you'd find it helpful to discuss this and your options in more detail, always happy to go through things on a free advice call - either DM me or call me on the number in my post signature.

 

[DWS]

Of course you are correct from a simple equation way of looking at this, but the reality is that he does not have this money. To quote OP:

So you are happy to encourage opening a Company, have profits of around £150k, spend it all and because they no longer have the money then it’s okay to just walk away!

 

[ChrisCallaghan]

So you are happy to encourage opening a Company, have profits of around £150k, spend it all and because they no longer have the money then it’s okay to just walk away!

Not at all, but I am also not here to judge. OP doesn't have a time machine and cannot undo what has been done. I am not condoning their actions, but OP is still entitled to the correct advice about what options are legally open to them at this time.

 

[Surrey_bloke]

So you are happy to encourage opening a Company, have profits of around £150k, spend it all and because they no longer have the money then it’s okay to just walk away!

It's a valid way of solving this issue, and it's legal. However I see you point it's open to abuse, someone could easily just create a company and dissolve it every 2 years without submitting any returns. It's a flaw in the system which needs to be fixed by legislation.

 

[DWS]

It's a valid way of solving this issue, and it's legal. However I see you point it's open to abuse, someone could easily just create a company and dissolve it every 2 years without submitting any returns. It's a flaw in the system which needs to be fixed by legislation.

Exactly this, and apologies if you think I am judging you, as I am not, everyone has their own specific situations, I just do not like it when people actively encourage this course of action, closing a Company with debts should be a last resort not an easy option to get away without paying your taxes.
At the end of the day if an employee took £10k of their Employers money what would be the outcome?

 

[JEREMY HAWKE]

The spongbob plan was never drawn up for those that could afford to liquidate with an IP

If you can afford to start up a new company then you can probably afford an IP It could save a lot of hassle

 

[Surrey_bloke]

The spongbob plan was never drawn up for those that could afford to liquidate with an IP

If you can afford to start up a new company then you can probably afford an IP It could save a lot of hassle

It costs £50 to create a new company on companies house, how much would an IP cost?

 

[ChrisCallaghan]

It costs £50 to create a new company on companies house, how much would an IP cost?

Quotes will vary from practice to practice, and would be based on the level of work involved. I have sent you a DM advising what I would quote based on the information you've provided.

 

[JEREMY HAWKE]

It costs £50 to create a new company on companies house, how much would an IP cost?

Yeh
Start up costs

4K ish but it might save you 30 K of hassle down the line!

 

[Surrey_bloke]

Yeh
Start up costs

4K ish but it might save you 30 K of hassle down the line!

Ah I see, if HMRC objects to the dissolution can I then go down the IP route? Otherwise surely it's cheaper to let the company be dissolved without insolvency process? Given the lack of funds I think SpongeBob is the best route.

 

[JEREMY HAWKE]

Ah I see, if HMRC objects to the dissolution can I then go down the IP route? Otherwise surely it's cheaper to let the company be dissolved without insolvency process? Given the lack of funds I think SpongeBob is the best route.

I give up

 

[UKSBD]

So what happened to the £28k that you owe in C/Tax?

More to the point: What happened to the other £120,000?

How was the OP taking money out of the business and was he paying any personal tax on the income he was receiving?

 

[Surrey_bloke]

More to the point: What happened to the other £120,000?

How was the OP taking money out of the business and was he paying any personal tax on the income he was receiving?

I pay salary and dividends I took some out thinking I would repay it back when I got more work. So I have paid PAYE and dividend tax will be covered by my self assessment. Nothing dodgy just bad luck!

 

[japancool]

People should really stop calling it the "Spongebob plan". It's not any kind of special plan, it's just following an established government procedure.

 

[UKSBD]

I pay salary and dividends I took some out thinking I would repay it back when I got more work. So I have paid PAYE and dividend tax will be covered by my self assessment. Nothing dodgy just bad luck!

I wasn't suggesting anything dodgy, it's just I'm surprised that business owners in similar situations appear to worry about what the business owes rather than what they personally owe.

If the company gets dissolved and that £28k gets written off, you still need to personally account for it as income.

 

[ChrisCallaghan]

People should really stop calling it the "Spongebob plan". It's not any kind of special plan, it's just following an established government procedure.

Wholeheartedly agree. I certainly don't refer to the process and the "Spongebob plan" when I'm advising clients away from UKBF.

When I first joined UKBF I thought everyone talking about Spongebob this and Spongebob that had all gone mad!

My preference is to call it what it is: Communicating to creditors that the company is insolvent, ceased/ceasing to trade and inviting creditors to wind up, whilst also considering making a strike off application.... but that is a bit of a mouthful!

I also prefer to signpost those considering this to the template letter provided by Business Debtline, rather than Spongebob's - for me, it is better for compliance given Business Debtline's status as a registered charity. Link below for any visitors to this thread who needs:

Considering strike off | Sample letter | Business Debtline

Use this letter to tell your creditors and members of your limited company that you are considering strike off.

businessdebtline.org

 

[Elliot Green]

Thanks for your reply, how would HMRC know I owed anything without submitting an annual return or about the "asset" directors loan? I read a few older threads on this and it seems these things just disappear when you dissolve, I know if you have a BBL it's different but I don't have one.

Nothing disappears when you dissolve. A company can be reinstated after it has been struck off.

HMRC will know because there is an obligation to tell them.

Section 1006 of the Companies Act 2006:

(1) A person who makes an application under section 1003 (application for voluntary striking off) on behalf of a company must secure that, within seven days from the day on which the application is made, a copy of it is given to every person who at any time on that day is—

...

(c) a creditor of the company,

(4) A person who fails to perform the duty imposed on him by this section commits an offence.

If he does so with the intention of concealing the making of the application from the person concerned, he commits an aggravated offence." [added emphasis]

 

[Surrey_bloke]

Nothing disappears when you dissolve. A company can be reinstated after it has been struck off.

HMRC will know because there is an obligation to tell them.

Section 1006 of the Companies Act 2006:

(1) A person who makes an application under section 1003 (application for voluntary striking off) on behalf of a company must secure that, within seven days from the day on which the application is made, a copy of it is given to every person who at any time on that day is—

...

(c) a creditor of the company,

(4) A person who fails to perform the duty imposed on him by this section commits an offence.

If he does so with the intention of concealing the making of the application from the person concerned, he commits an aggravated offence." [added emphasis]

Part of the SpongeBob method is to send copies to creditors so I don't see how this would apply?

 

[Elliot Green]

Part of the SpongeBob method is to send copies to creditors so I don't see how this would apply?

Section 1006 is *legislation* so it is axiomatic that it is relevant to someone looking to embark upon a voluntary strike off procedure.

 

[Surrey_bloke]

Section 1006 is *legislation* so it is axiomatic that it is relevant to someone looking to embark upon a voluntary strike off procedure.

So if I send the copy to HMRC and the company is struck off regardless and dissolved then I've followed the legal procedure and as the company is dissolved the companies debts die. Yes it could be reinstated but why would a creditor do that, it would cost them thousands just to find out there is nothing.

 

[Elliot Green]

So if I send the copy to HMRC and the company is struck off regardless and dissolved then I've followed the legal procedure and as the company is dissolved the companies debts die. Yes it could be reinstated but why would a creditor do that, it would cost them thousands just to find out there is nothing.

It is not unknown for HMRC to object and put the company into Compulsory Liquidation. This is a typical policy decision; it is not a commercial decision. There is sense to it. In the long run it does have a commercial rationale for society as a whole.

If a company goes into Compulsory Liquidation then the assertions of a director can be tested by an independent Liquidator against the contemporary evidence. That is a cardinal principle and purpose of Liquidation and one of the reasons it is can be preferred by creditors to permitting voluntary strike off by directors.

Assertions such as there are no assets do not necessarily automatically reconcile with a Liquidator's investigations. That is because property of a company is defined in Section 436 of the Insolvency Act 1986 and it can include claims against directors that might not usually sit on the balance sheet but nevertheless exist.

 

[WaveJumper]

The question I always ask myself when I read these types of threads who decided and on what basis the company had enough funds to pay out dividends especially when they knew a CT bill would be landing on the doormat.

For me I am sorry but Director's whistling in the wind thinking income "maybe be coming" in to cover imminent costs / tax bills is not "running" a company, where's the business planning.

We see in other threads where there's a "surprise" that the VAT bill can't be paid again for very similar reasons I do wonder like driving a car perhaps its time for mandatory lessons on how to run a company before being granted LTD status ....... any thoughts

 

[Elliot Green]

The question I always ask myself when I read these types of threads who decided and on what basis the company had enough funds to pay out dividends especially when they knew a CT bill would be landing on the doormat.

For me I am sorry but Director's whistling in the wind thinking income "maybe be coming" in to cover imminent costs / tax bills is not "running" a company, where's the business planning.

We see in other threads where there's a "surprise" that the VAT bill can't be paid again for very similar reasons I do wonder like driving a car perhaps its time for mandatory lessons on how to run a company before being granted LTD status ....... any thoughts

It seems to be time for directors to sit exams to be licensed to enjoy the privilege of the veil of incorporation. Too many I speak to don't seem to necessarily fully understand the strict and mandatory requirements for declaring dividends and see it as akin to remuneration.

Too many I speak to seem to sign off accounts without necessarily fully understanding them notwithstanding they ought not do so as a matter of law if they are not satisfied they show a true and fair view.

Too many don't seem to necessarily fully understand a) what an Overdrawn Director's Loan Account is and b) that it is an asset of a company.

You have to be licensed and or now pass an exam to drive, to sell alcohol, change a dimmer switch, to be involved in controlled waste management disposal, to provide consumers financial advice - yet you can run a limited company and inadvertently or otherwise cause huge losses with somewhat limited barriers to entry.

More red tape and bureaucracy is perhaps undesirable but if the current emphasis is to be maintained the law should at least be expeditiously and robustly enforced.

 

[DWS]

Yes it could be reinstated but why would a creditor do that, it would cost them thousands just to find out there is nothing.

But there is something, there is the £28k owed to the Company by the Director which is an asset.

 

[Elliot Green]

So if I send the copy to HMRC and the company is struck off regardless and dissolved then I've followed the legal procedure and as the company is dissolved the companies debts die. Yes it could be reinstated but why would a creditor do that, it would cost them thousands just to find out there is nothing.

Reinstatement does not cost HMRC thousands and in any event, it has deep pockets and in house lawyers.

 

[Elliot Green]

But there is something, there is the £28k owed to the Company by the Director which is an asset.

It appears to have been said that the company owed £28k in corporation tax.

 

[ChrisCallaghan]

The question I always ask myself when I read these types of threads who decided and on what basis the company had enough funds to pay out dividends especially when they knew a CT bill would be landing on the doormat.

For me I am sorry but Director's whistling in the wind thinking income "maybe be coming" in to cover imminent costs / tax bills is not "running" a company, where's the business planning.

We see in other threads where there's a "surprise" that the VAT bill can't be paid again for very similar reasons I do wonder like driving a car perhaps its time for mandatory lessons on how to run a company before being granted LTD status ....... any thoughts

For 20 years I've felt that there should be some form of mandatory course, nowadays maybe a half a day Zoom, for first time directors, about the duties and responsibilities.

But part of me always thinks would this be anti entrepreneurial?

 

[DWS]

It appears to have been said that the company owed £28k in corporation tax.

And it has assets of £28k, so if the assets are repaid then the Company can pay HMRC

 

[Lisa Thomas]

I haven't read all the replies so apologies if I'm repeating something here.

I assume your overdrawn directors loan is c£30k?

What is your ability to repay some/all of that money to the company? You could use some of that repayment to cover the cost of liquidation.

Does the company have any other assets - physical or debtors etc?