Liquidate or Dissolve business owing HMRC money?

[AdamJBusiness]

Hi Guys,
I find myself in a bit of a situation with the Ltd Company I run and am hoping for some guidance and advice. I'll try and be as brief as possible but feel free to ask if I've missed anything out. All my research has led me to this forum and a few specific individuals including SpongeBob and Alan R Price who seem to know a lot about this kind of thing. Any input would be much appreciated.

Company has been trading since 2010 (Recruitment Business) I'm 28 years old and this is my first business. The company had a quiet first year, huge second year and then has been downsizing since then. For the last 12 months I have been working a standard PAYE job away from this business letting it run itself. I had some contractors out working for me generating income and just had to do some payroll weekly / monthly to keep afloat.
The company currently has £6000 in the bank and about £2000 due to into the business by 15th December. A few weeks ago I estimated my VAT bill to be £3000 (to submitted and paid by November 2013), my corporation tax to be about £1000 (for 2012 - 2013, due Jan 2014) and that is it. I owe my accountant £2500 for producing my April 2012 - March 2013 which he had not done at that point. I attended my meeting with my accountant who had produced a set of draft accounts for me and said that the corporation tax due was about £5000. On top of that when I worked out my VAT return it looked more like £8500. The reason I had got my VAT figures wrong was because I'd been paying some contracts in America VAT and had to collect it back from them when I realised I shouldn't be paying them VAT.
Financial record keeping has not been my strongest point.

I'm now at the stage where I owe £8500 VAT and £5000 Corporation Tax (I have not submitted my VAT return as yet and the account has not been submitted to companies house yet because I mentioned the word liquidation and my accountant has got very shirty with me and demanded I speak to the Insolvency Practioner firm that they work with. I have also not actually filled my accounts for that year so the £5000 is not currently showing up as owing.)

Now the tricky part… from my first year of trading (2010) I found out this week my accountant put £9000 into a Directors Loan account (£4500 for me and £4500 for my partner who is a fellow Director / equal shareholder) in order for save us tax. Also from April 2013 to present I have taken £13,000 out the company in drawings).

After the final payments come in over the next two weeks I have no more income being generated from this business as I have no contractors now and I am due to start a new job in January.

The problem I have is I have no way to pay anything back into this business upon closing and need to try and walk away without owning thousands of pounds to the revenue / liquidator.

I spoke to one lady (an IP) and she said because the amounts are so small the HMRC will not be interested in chasing me. I should turn the drawings and Loan account into salary and re-run a payroll to this effect. (this will incur a large PAYE bill aswell) Then write to PAYE, VAT and Corporation tax and offer them an equal percentage of the money that's left in my account. My debt would be about £21,000k in total to them and I should have £8,000k to offer them as a final settlement. The only other creditor would be my accountant who I would owe £2,500 too. If all goes well and they accept my offer apply to be struck off and sorted.

Another person I spoke to was a company who said they would liquidate my company for £2500 and that would sort everything out. Again get rid of the drawings and loan account as salary and have a valid reason for operating in this way and all it would cost is £2500, they would then take everything off my hands and distribute the money that remaining.

Another IP (the one my accountant recommended) said the right thing to do is liquidate at a cost of £4000. Work out what I should give back and come up with a plan to pay it all back. he thinks I will owe at least the £9000 loan account and possible some of the drawings) He also thinks I should pay the accountant first off.

I'm really lost and not sure what to do… My other half is very worried about all this as we own our home, have one child and 1 on the way (a pregnant wife and this stress is not mixing well together!)

A few points to show I'm not just trying to get out of paying the HMRC:

· I've always paid all my taxes, VAT, Corp and PAYE on time
· I understand that you shouldn't take money out when there is no profit however my accounts looked healthy and my accountant has NEVER warned or given me any indication that I shouldn't be drawing, he constantly said take out what you need and we will sort it at year end.
· My accountant has never advised me about the loan account and has severely overcharged me for the past 3 years, I've only realised this by speaking to various IP's and other accountants about my situation this week.
· This has all hit at the same time in terms of the VAT being £5k more than I anticipated and my accountant estimating £0 and then telling me it's going to be £5k 1 month before its due in Jan 2014.
· This is my first ever business and hands up its fallen down this route due to my bad financial planning / cash flow management. I feel this coupled with the bad advice / guidance from my accountant is why I find myself in this situation
· Since I found out I was in this situation I have frozen everything going out the business account and ended all contracts.
· My accountant is currently refusing to file my accounts or do anything until I pay him his £2500.
· I know the IP offering to liquidate at £2500 is very cheap and have been warned about a sting in the tail but I feel he will make his money from the £5,500 left in my bank account (I don't mind this so long as I can leave without owning thousands back)

I'm not sure which way to take this, do I find another accountant? do I pay my current accountant to submit my accounts and keep him sweet? Do I submit my VAT return? Do I re-run the payroll and try to hide my drawings/ loan account? Do I liquidate? Do I write to the HMRC? Do I wait until all sales invoices have been collected (December 15th) then make a call?

Any advice greatly appreciated….

Feel free to ask any questions, sorry about the essay… the only way I knew how to explain my situation

 

[Alan R Price]

There's a lot of information in your post eek so I'll try and strip it down to the bare minimum. It seems to me that, in summary, the company has debts of about £13,500 for VAT and corporation tax and owes its accountant £2,500. It has no other debts. The assets are £22,000, comprising a claim against you for about £13,500 and your co-director for £4,500 for your overdrawn loan accounts. You have seen a number of insolvency practitioners, who have given you varying advice. There is certainly more way than one of skinning a cat however I would be vary wary of any advice that tells you to re-state your drawings to extinguish your loan account - this might be considered fraud because the only effect it would have would be to get you off the hook, while at the same time creating a PAYE liability.

£2,500 is an incredibly small amount to charge for a liquidation - it would barely cover the out of pocket expenses, so I wonder what other agenda that IP has.

It is quite possible the company will go into liquidation and although the figures are pretty small as these things go, there is certainly a risk the liquidator would come after you for the overdrawn loan. You could try the voluntary striking off route and this might mean nobody asks you to repay your loan but you would still be open to HMRC petitioning and a liquidator coming after you. There are plenty of posts on here about the Spongebob Plan and what happens when directors owe a company money.

What do you do from here? It's a matter for you. If you feel you have an obligation to pay back what you owe the company but can't repay it all at once, talk to its creditors and arrange a payment plan, based around what you can afford to pay (but never offer to pay the debt direct or accept any personal liability for their debts). Alternatively, you could try applying for striking off or just sitting back and letting it be wound up.