Ltd company advice

[Madhouse99]

Hi everyone, I’ve been reading a lot of the posts on here and they are all amazingly helpful. I’m hoping if I give you our scenario you guys could give me some advice?
My husband and I are directors of our company, no other staff.
My husband is an engineer and I basically give the accountant what he needs (and look after our four young kids).
We have traded for the last 5 years with no issues, everything paid CT/VAT and paid on time etc.
The introduction of the dividend tax to us last year was a bit of a shock but it was paid.
For a while ir35 has been looming but no one in my husbands industry thought it would actually be initiated but it is slowly and steadily gaining legs.
Having researched all avenues of how to remain a contractor through ir35/ dividend tax etc it is very apparent it is not a viable option for us anymore, everyone around my husband has now had ir35 applied to them so it’s only a matter of time before it’s our turn.
My husband has just been offered an amazing opportunity of a salary job it’s a lot less then his earnings as a contractor but gives us the security we have never had which is too good to turn down (and no more worrying about ir35). Our problem is our company is not sitting nicely in terms of CT tax to be paid at present. The bill is not due to be paid until aug 19 but going direct now would only mean we can pay around 5k of a 20k bill not including the CT we owe this year for the first part of the new trading year.
We have always run the finances well and the thought of this just feels horrible, I don’t want to liquidate or become insolvent but we will have no extra income if he goes direct to pay this bill. What would HMRC do to us if we can’t pay them CT, with last years bill and part of this year I estimate it to be a debt of 25k to HMRC. Please help?

 

[Gavin Bates]

Hi

The IR35 is certainty coming to head so you are not along.

As you may have read on this forum one of the options is the spongebob plan. The other is a liquidation.

Because the CT is £20k there is a good chance that HMRC will wind up the Company and place it into compulsory liquidation. This will then be dealt with by the official receiver in the first instance.

You need to be aware that you will potentially have an O/D directors loan account or will have received dividends which were illegal at the time.

Therefore I think you should take insolvency advice to fully understand your position in particular the loan account / dividend position. You could arrange a payment plan with a liquidator if necessary.

I appreciate this post may seem harsh but I think it is best to understand the possibilities. Others on the site will say do the spongebob plan and keep your fingers crossed and that may work.

Kind regards

Gavin

 

[Adam93]

Gavin is correct.

It’s not the fact the company can’t afford it, it is because your have taken/going to be withdrawing to much from the company.

The fact that you are aware this is an issue now, you shouldn’t declare any more dividends.

 

[UK Contractor Accountant]

Yes it is the switch of the responsibility for determining IR35 status from the Contractor Ltd Comany to the end user/engager that is causing the problem in the Contractor market.

Interestingly HMRC lost most of the IR35 cases it took to Tribunal/Court, however, end users do not want run the risk of getting it wrong so the easier option is to take contractors onto the payroll

 

[Lisa Thomas]

I agree with Gavin - you need to take professional insolvency advice from an IP.

 

[Blaby Loyal]

Therefore I think you should take insolvency advice to fully understand your position in particular the loan account / dividend position.

Essential.

 

[Madhouse99]

Thank you all for your time to reply and for your advice I really appreciate it!
I’ve been through our finances today with a fine tooth comb and with the sale of our car for something cheaper we can give HMRC 14k towards the overall bill do you think they would they allow the business to just be struck off without liquidation with a smaller debt owing?

 

[Lisa Thomas]

Do you ow the Company any money?

Are you intending on continuing to trade this Company?

If not, can I ask why you are selling personal assets to pay the Company debt?

 

[Madhouse99]

Yes, since we moved house we have been chasing our tails a little with the CT we took more out of the business with the belief it will get repaid before the deadline as the current contract was substantial enough to do this.
The salary direct opportunity has only really just presented itself as prior to this opportunity the money coming in from contracting with the length of the current contract he is on would have easily seen us up to date with all accounts.
I have asked to see if his start date can be pushed back so to give us a chance to get the accounts level but it’s a now or never with the salary job on the given amount, he won’t get a better offer due to ir35 being brought in and everyone going salary it will just push the rates down.
I hate the idea of not clearing all owed by us and am really hoping HMRC might see we are trying if we can offer them a larger amount.
It feels like we are stuck between a rock and a hard place, we either stay as a business pay all we owe and ir35 will catch us giving an unworkable income, insecure etc or he jumps now for this brilliant job offer which renders us in debt with HMRC but we have the security. We might be able to pay £50 a month towards the remaining debt? I’ve literally have no experience of HMRC only to pay our bills I have no idea of how they could potentially deal with our situation? Sorry for the length!

 

[Blaby Loyal]

Why are you striving to pay company debts from personal assets?

As Lisa has asked - do the directors owe any money to the company? This is especially relevant to the potential for overdrawn loan accounts derived from dividends paid when no distributable reserves existed.