Ltd company tax

[teddys]

I would agree with Walkol - businesses (regardless of size) do have an obligation to pay a fair share of tax. Remember, setting up as incorporated already saves you a fair amount of tax anyway.

And forum members have a moral obligation, IMO, not to reduce the forum to be a tax avoidance one! A recent thread on here was audacious enough to seek advice on legalising fake payrolls with a view to saving on corp tax!!

 

[Paul_Rosser]

I would agree with Walkol - businesses (regardless of size) do have an obligation to pay a fair share of tax. Remember, setting up as incorporated already saves you a fair amount of tax anyway.

I totally agree, however there are rules (right or wrong) in place that allow firms to ignore their moral obligations and reduce the tax they pay via legal methods.

And forum members have a moral obligation, IMO, not to reduce the forum to be a tax avoidance one!

Playing devils advocate thats your personal view, what about the members who think tax avoidance is absolutley fine and are happy to offer legal advice to people on how to achieve this ? (I'm not one btw)

In other words should UKBF be censored to only offer advice which is deemed morally ok ? and if so who's morals should we use as the benchmark ?

 

[David Griffiths]

I totally agree, however there are rules (right or wrong) in place that allow firms to ignore their moral obligations and reduce the tax they pay via legal methods.

Playing devils advocate thats your personal view, what about the members who think tax avoidance is absolutley fine and are happy to offer legal advice to people on how to achieve this ? (I'm not one btw)

In other words should UKBF be censored to only offer advice which is deemed morally ok ? and if so who's morals should we use as the benchmark ?

Are you referring to the situation in this thread?

 

[Paul_Rosser]

No more general really as teddys said all members should have a moral obligation to not offer advice on tax avoidance. Of course not to be confused with tax evasion which is illegal so advice on such should never be offered.

 

[David Griffiths]

No more general really as teddys said all members should have a moral obligation to not offer advice on tax avoidance.

Just as well, as in my opinion what the OP is doing is quite simply tax evasion.

 

[teddys]

In other words should UKBF be censored to only offer advice which is deemed morally ok ?

Not really. What's perfectly legal needn't be ethically correct. And ethics can't be enforced (despite accountancy bodies trying their bit to make ethics a part of the syllabus!).

UKBF shouldn't be censored, but what about some self restraint??

 

[Paul_Rosser]

Just as well, as in my opinion what the OP is doing is quite simply tax evasion.

Would you know, if there is any specific law covering having to tell the HMRC of any CT liabilities when a company is struck off ?

If there isn't then there should be the need for a firm to file accounts up to the point of striking off and pay anything owed. But that's just my biased opinion.

 

[Homshaw]

I frequently come across people whose businesses have failed and have no way of paying their tax. I have total sympathy for them

This guy is saying I have an outstanding amount of tax. I want to write it off and start a new company. I have a future earning stream which I could use to pay of the outstanding amount but have no intention of doing so.

He is earning £60K a year from a taxpayer funded service. He has blown the money on high risk investments. My advice is take responsibliity for your actions and pay your taxes.

 

[David Griffiths]

Would you know, if there is any specific law covering having to tell the HMRC of any CT liabilities when a company is struck off ?

If there isn't then there should be the need for a firm to file accounts up to the point of striking off and pay anything owed. But that's just my biased opinion.

Not filing accounts at Companies House is a breach of the Companies Act, incurring a fine for the company.

Not ensuring that the company files accounts can lead to a criminal prosecution for the directors of the company.

Applying for striking off without sending a copy of the notice to all creditors is an offence under the Companies Acts

Paying a dividend when the company does not have distributable reserves is an offence under the Companies Acts

Not making a corporation tax return is an offence under the Taxes Acts

Not making a return of the directors loan on form P11d is an offence under the Taxes Acts

The director not making a return of any benefit in kind, dividends received or loans written off is a false tax return, or a failure to notify chargeability under the Taxes Management Act.

There's also the common law offence of cheating the public revenue

Apart from that, it's probably OK.

 

[Homshaw]

Had a contractor in my office today who told me of a colleague who saw the Alan Carr case on TV. He found out about the case and followed his lead. Not happy with not paying NI and income splitting he is now paying hardly any tax.

The government and HMRC need to do a lot better. People look at cases like this and think they are the only ones paying their fair share of tax

I'm half tempted not to do accounts for my Limited Company and pocket the tax. I'm due for retirement shortly doesn't matter if I get struck off

 

[Walkol]

Well, that escalated quickly!haha.

I'm sure it annoys all of us (well, it does me) when we have situations like we have in this thread - and the almost daily similar threads. However, currently our system is set up to virtually give no accountability what so ever to people over their business and personal finances. Yes, there are processes in place, but (IMO) they are of no deterrent at all to stop people walking away from their moral obligations.

However, that is the case we are in. Until these issues are sorted (they never will be in our lifetime, as greed rules the roost), I do not think we can censor posters giving people advise on how to beat the system. I personally would not give such advise (in most circumstances anyway), however it is not up to me (or anyone else) to stop others doing so. I will give advise based upon what I think I would do in a similar situation, both on here on in my professional life.

 

[Paul_Rosser]

Sure did, however it appears the advice given in the post I pasted the link to appears to be flawed as when having a company struck off you are meant to file a final set of accounts, how enforced this is I don't know though -

https://www.gov.uk/strike-off-your-company-from-companies-register/directors-responsibilities
Final accounts

You must send final statutory accounts and a Company Tax Return to HMRC.

To the OP - Work out your corporation tax liabilty, then approach the HMRC and offer them a payment plan.

 

[Simba7]

So are you saying even if I file to strike off before filing my accounts (end of December 2012), HMRC will object to strike off because I havnt filed my accounts for 2011-2012? Even thoug I have no debt to creditors or HMRC and I have paid my 2010-2011 taxes fully?

So what is the point of striking off when HMRC will still object and ask to see my accounts?

 

[Philip Hoyle]

Even thoug I have no debt to creditors or HMRC

You will almost certainly have debt to HMRC, being corporation tax on the profits, benefit in kind tax/NIC on amounts drawn by you over and above the payroll, etc.

 

[elaine@cheapaccounting]

Hi not sure what to do.

My account emailed asking he needs my payslips/invoices/bank statements for year ending March 2012 as he accounts are due for filing by 31.12.12.

I do Locum work and I am not sure if I can pay my ltd company tax of when I file my accounts.

I have been paying myself a minimum salary but I think my balance on my bank statement end of March 2012 is around £16k! Is that balance profit? Does that mean I wil need to pay tax on that?

How do HMRC know how much you earn in a tax year or do they go by what you file? I think I've earnt around £60k but i have been spending the money also for social e.g. Eating out, shopping etc I have been paying the PAYE tax though.

My accountant has not really explained how to manage a ltd company and I think I'll be in trouble if I file my accounts. I know it's wrong but can I wind down the company or close it down before filing?

Does anyone have any advice?

Many thanks

Even thoug I have no debt to creditors or HMRC and I have paid my 2010-2011 taxes fully?

I thought that you hadn't filed your accounts or paid your tax bill :|:|:|

 

[Simba7]

I have filed my First accounts for tax year 2010-2011, which I payed my PAYE and corporation tax fully, so no previous debts with HMRC. My accounts are due for filing for the 2nd time by the end of this month December 2012 for tax year march 2011-march 2012 but I don't have the money to pay it. I have been advised on this forum before the end of this month if I file for strike off myself that is the end of the matter as HMRC are not aware of my debts for this tax year as I haven't filed my accounts and I have paid my previous year taxes! But now I have been advised that HMRC will object because you need to file accounts prior to strike off voluntarily. So my question is what's the point of me striking off when they will object it? Isn't best for me to file my accounts and let them strike off??

 

[elaine@cheapaccounting]

I assume you think you owe tax to HMRC?

On that basis, and following the rules of strike off, you need to inform all of your creditors prior to applying to strike off - HMRC being one of them.

 

[Philip Hoyle]

You owe the tax whether or not you prepare and file the accounts. It's the trading income and costs, and the amounts you've drawn that trigger the personal and company tax liabilities, not the act of filing the accounts!

To comply with the law, you have to prepare and submit the accounts and complete and submit all personal and company tax returns.

Then you come to the Spongebob plan which isn't legal, but is apparently what is likely to happen in reality. I.e. despite not bothering to file the accounts and returns and pay the tax, Spongebob suggests that the authorities aren't likely to catch you for it!

So it's like speeding in your car. Yes, it's illegal, but that depends on being caught!

All professional accountants will advise you to comply with the law. Whether you take that advice and risk being caught is entirely your own decision and you'd bear the consequences.

 

[elaine@cheapaccounting]

Hi not sure what to do.

My account emailed asking he needs my payslips/invoices/bank statements for year ending March 2012 as he accounts are due for filing by 31.12.12.

I do Locum work and I am not sure if I can pay my ltd company tax of when I file my accounts.

I have been paying myself a minimum salary but I think my balance on my bank statement end of March 2012 is around £16k! Is that balance profit? Does that mean I wil need to pay tax on that?

How do HMRC know how much you earn in a tax year or do they go by what you file? I think I've earnt around £60k but i have been spending the money also for social e.g. Eating out, shopping etc I have been paying the PAYE tax though.

My accountant has not really explained how to manage a ltd company and I think I'll be in trouble if I file my accounts. I know it's wrong but can I wind down the company or close it down before filing?

Does anyone have any advice?

Many thanks

You owe the tax whether or not you prepare and file the accounts. It's the trading income and costs, and the amounts you've drawn that trigger the personal and company tax liabilities, not the act of filing the accounts!

To comply with the law, you have to prepare and submit the accounts and complete and submit all personal and company tax returns.

Then you come to the Spongebob plan which isn't legal, but is apparently what is likely to happen in reality. I.e. despite not bothering to file the accounts and returns and pay the tax, Spongebob suggests that the authorities aren't likely to catch you for it!

So it's like speeding in your car. Yes, it's illegal, but that depends on being caught!

All professional accountants will advise you to comply with the law. Whether you take that advice and risk being caught is entirely your own decision and you'd bear the consequences.

good summary

 

[Simba7]

Hi thank you all for your input. I just wanted to ask, I last traded last month, can I still send the DS01 form now to CH and HMRC? If not and I have to wait 3 months to send it, does that mean I will be late for filing my accounts (as its due end of this month) and I will be charged PLUS they will object to the DS01 strike off because I havnt filed my accounts on time?

Sorry if I sound repetitive but I'm trying to get my head you've this.

 

[MrAnchovy]

What you need to get your head round is that what you are discussing is a crime, in fact a series of crimes some of which you have probably already committed and some of which you are proposing to commit.

This is not some clever way of playing the system to avoid some administrative red tape, it is fraud.

 

[Simba7]

Well many thanks for all your input and advice. I will think about submitting my accounts as this forum has confused me. But I appreciate your advice.

 

[Paul_Rosser]

Sorry probably my fault. I assumed as no one said anything in the other post, that spongebobs plan was all above board.

As it turns out it's very naughty indeed and should not be followed. Or you can if you like, but it's at your own risk.

 

[Alan R Price]

The Spongebob plan is not illegal. There is nothing in the law to prevent the directors of an insolvent company or one that has not filed its accounts from applying for voluntary striking off and dissolution. Yes, the company can be fined for failure to submit accounts however directors are rarely pursued personally for this (it requires the Registrar of Companies to apply to court for an order against the director personally, which it rarely does, except in cases of persistent or serious default). The Registrar will usually cease all enforcement action once an application to strike-off has been filed. There is a good reason for this: it's a waste of time to pursue the matter further. Yes, liquidation is in most cases the "correct" way to dispose of an insolvent company, however in cases where there are few liabilities and no assets, it is clearly undesirable to burden the public purse with the official receiver's costs of carrying out a pointless and unnecessary pen-pushing administrative exercise. If there are aggrieved creditors, they should take steps to wind up the company themselves and if necessary fund a liquidator to investigate its affairs and if appropriate, pursue the directors. Liquidation is a fact of commercial life. Without credit there would be no commerce. Without credit there would be no insolvencies. Without insolvencies there would be no liquidation.

People who go into business need to understand that they will experience bad debts from time-to-time and provide for these. It's tough but it's inevitable so it's about reducing the risks. Many businesses do not vet their customers thoroughly enough either before extending credit to them or periodically once the relationship has been entered into: they are the ones who are likely to suffer in the event that one of their customers fails. After over 30 years in the insolvency profession I can say with a fair degree of authority that most insolvencies do not result from misconduct by company directors: foolishness, yes. Bad judgment and poor practices, yes. Lack of expertise and acumen, yes. And in some instances, bad luck. But those are not illegal and as long as directors are not reckless or dishonest they will not usually be punished for them. It is up to suppliers and others who extend credit to protect themselves from, and deal with the consequences of, bad debts. As the saying goes: "If you can't stand the heat, get out of the kitchen."

Turning back to Spongebob's plan, what is illegal is directors stripping out a company's assets once it is insolvent and applying for striking-off. The assets should either be used to put the company into liquidation so the matter can be dealt with by a licensed professional and/or its affairs investigated by the official receiver; or if they truly are minimal, realised and paid out to creditors pro-rata as a precursor to striking-off.

 

[Paul_Rosser]

Sorry Alan I'm confused now.

The bit about not filing accounts can lead to a criminal conviction, would mean it's illegal. Unless that's wrong.

Not filing accounts at Companies House is a breach of the Companies Act, incurring a fine for the company.

Not ensuring that the company files accounts can lead to a criminal prosecution for the directors of the company.

 

[elaine@cheapaccounting]

There is nothing in the law to prevent the directors of an insolvent company or one that has not filed its accounts from applying for voluntary striking off and dissolution.

Yes and as long as they follow the rules e.g. inform all creditors (who could object to strike off) then all is good

 

[Paul_Rosser]

But the rules also say you should file a set of accounts up to the time of the striking off and pay any CT/VAT/PAYE owed. Which is the bit most of the people I've seen asking are trying to avoid.

I understand that in reality if you apply for a company to be struck off and don't file accounts then the HMRC won't chase you, but that doesn't make it legal, just something which isn't really enforced.

 

[Alan R Price]

Sorry Alan I'm confused now.

The bit about not filing accounts can lead to a criminal conviction, would mean it's illegal. Unless that's wrong.

I didn't say failure to file accounts wasn't illegal: it can lead to fines for the company and in serious cases RegCo can apply to court for a personal liability order on the directors; however in reality the latter rarely happens and in the case of the former, if the company has no assets and an application has been made to strike it off, how is RegCo going to enforce the fine? It is the company's liability, not the director's. I am simply stating how it is, not commenting on the moral implications.

 

[elaine@cheapaccounting]

not commenting on the moral implications.

well yes now then - that sentence can create a huge debate.

 

[Alan R Price]

But the rules also say you should file a set of accounts up to the time of the striking off and pay any CT/VAT/PAYE owed.

I'm not aware that this is a requirement of any statute or other law, Paul. There is a general requirement on a company to pay its debts and file its accounts however I challenge anybody to produce a reference to any specific provisions that this must be done before the company can be struck off. Indeed RegCo can (and often does) strike off companies on its own initiative on the grounds that they haven't filed accounts!

 

[Homshaw]

Yes Its not illegal. It is about time HMRC, the Liquidation Service and Companies House sorted some effective controls.

It's too easy to dodge your responsibilities. Even when the Director has a clear intent to dodge his responsibilities the bar is set so high to actual disqualify him as a director it doesn't happen as often as it should

I'm surprised all small Limited Companies don't do it

Yes people can genuinely go under. I know quite a few and have total respect for them. They tried their best to achieve something.

However if you took a close look at this case you might even find it difficult to prove he was self employed - A & E Locums can't operate how they want. He might well struggle with IR35.

£60K a year and no tax - Disgusting

 

[Alan R Price]

Yes Its not illegal. It is about time HMRC, the Liquidation Service and Companies House sorted some effective controls.

Regrettably, that's not going to happen with current budgetary constraints . . . but don't get me started on the shortcomings of the Insolvency Service and its disqualification and prosecution units . . . Only when the business community as a whole adopts a unified approach and begins to press central government hard for the regime to be properly enforced (all the provisions are there in the law - they are just not applied strictly enough) will we see a reduction in the number of people thumbing their noses at the system. And of course, there must be equilibrium between materiality/risk/reward/punishment/crime/proportionality/cost/commerciality and so on. It's not an easy equation balance.

 

[Paul_Rosser]

I'm not aware that this is a requirement of any statute or other law, Paul. There is a general requirement on a company to pay its debts and file its accounts however I challenge anybody to produce a reference to any specific provisions that this must be done before the company can be struck off. Indeed RegCo can (and often does) strike off companies on its own initiative on the grounds that they haven't filed accounts!

I got this from gov.uk, doesn't mention the legality so may just be more of a guideline.

"Final accounts

You must send final statutory accounts and a Company Tax Return to HMRC.

1. Prepare your final accounts and company tax return.
2. File your accounts and company tax return, stating that these are the final trading accounts and that the company will soon be dissolved.
3. Pay all Corporation Tax and any other outstanding tax liabilities."

https://www.gov.uk/strike-off-your-company-from-companies-register/directors-responsibilities

 

[elaine@cheapaccounting]

I got this from gov.uk, doesn't mention the legality so may just be more of a guideline.

well that is your first mistake - getting anything from that site. What a lot of

 

[Paul_Rosser]

well that is your first mistake - getting anything from that site. What a lot of

Thanks Elaine, I did suspect that may be the case.

 

[MrAnchovy]

The Spongebob plan is not illegal.

Yes it is, as you yourself state in the same post!

Turning back to Spongebob's plan, what is illegal is directors stripping out a company's assets once it is insolvent and applying for striking-off.

Offences that are likely to have been committed as part of the whole series of events include:

Fraud by failing to disclose information under S3 Fraud Act 2006;

A person is in breach of this section if he—
(a)dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
(b)intends, by failing to disclose the information—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.

and Fraudulent trading under S993 Companies Act 2006.

(1) If any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, every person who is knowingly a party to the carrying on of the business in that manner commits an offence.
(2) This applies whether or not the company has been, or is in the course of being, wound up.

Each of these carries a maximum penalty of 10 years.

There are other offences which may or may not have been committed as part of the trail and may or may not be easier to prove - illegal dividend (how has the cash been extracted from the company?), preferential treatment of creditors (what has happened to the money that should go to HMRC?), theft (has a director dishonestly appropriated property (cash) belonging to another (the company and/or HM Treasury) with the intention of permanently depriving the other of it?)

 

[teddys]

Stripping a company of its resources for personal use does violate many provisions of CA 2006:

s. 171: Duty to act within powers: A director of a company must— (a)act in accordance with the company's constitution, and (b)only exercise powers for the purposes for which they are conferred.

s. 172: Duty to promote the success of the company: (1)A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a)the likely consequences of any decision in the long term .................................................

s. 173: Duty to exercise independent judgment

s. 174: Duty to exercise reasonable care, skill and diligence.

s. 175: Duty to avoid conflicts of interest: (1)A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. (2)This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).

etc. etc .......... and then:

s.178: Civil consequences of breach of general duties.

(1)The consequences of breach (or threatened breach) of sections 171 to 177 are the same as would apply if the corresponding common law rule or equitable principle applied.

(2)The duties in those sections (with the exception of section 174 (duty to exercise reasonable care, skill and diligence)) are, accordingly, enforceable in the same way as any other fiduciary duty owed to a company by its directors.

So it is not that deliberating driving a company to bankruptcy is legal; IT IS NOT. It is just that the resources available with C.House or the HMRC are grossly inadequate to investigate millions of companies registered with the C.House, particularly given the explosive growth of one-man-band Ltds.

As for taxation, the recent Finance Acts have added legislative teeth to HMRC’s efforts to investigate businesses. There are sufficient legislative safeguards already available in the form of IR35 etc to stop tax leakage. In a sense winding up a company to avoid tax payments may even tantamount to tax fraud. All it requires is someone tipping HMRC through their fraud helpline, in these days of austerity!!

 

[Alan R Price]

Yes it is, as you yourself state in the same post!

Actually I didn't. The basic Spongebob plan is to send a letter to the creditors inviting them to wind up the company and if they don't, to apply for voluntary striking-off. There is nothing illegal in that. There may have been illegal dividends. There may have been other defaults, such as failure to file accounts or returns that ought to be investigated (and would be if there was a formal liquidation); however the basic plan is not illegal.

Spongebob does give advice that makes me wince sometimes but in reality a lot of what he says is a true reflection of what actually happens. That doesn't make it right, of course and it is up to the people who use the forum if and how they act on advice they read here. The fault is in the way the system is operated. As I say in one of my earlier posts, the framework is there but it is not policed adequately.

 

[MrAnchovy]

Actually I didn't. The basic Spongebob plan is to send a letter to the creditors inviting them to wind up the company and if they don't, to apply for voluntary striking-off. There is nothing illegal in that.

That's a bit like saying "there's nothing illegal in driving a car at 70 mph down the motorway". Well no, but it is illegal to drive a stolen car which you are using as the getaway car from a bank robbery. I believe the maximum penalty for that is 10 years, the same as fraud.

This isn't like advising someone on the civil penalty a company is likely to incur if it doesn't pay its tax on time, this is incitement to commit an indictable offence.

I can't believe the owners of this forum allow it to continue.

 

[Spongebob]

Bloody Hell!!

I would not normally look at a thread with such a dull title but I felt my ears burning!

Let me just say at the outset that 'The Spongebob Plan' is very simple, highly effective, and 100% lawful. I resent greatly any assertion to the contrary by certain individuals who are clearly quite ignorant of the laws regarding insolvency.

I formulated 'The Spongebob Plan' specifically for the benefit of director/owners of small companies finding themselves in the invidious position of being insolvent, having few if any assets, and worrying themselves sick about how to proceed. It was never intended to be a way of avoiding tax or shafting creditors.

In very simple terms 'The Spongebob Plan' is as follows;

1. A director makes the realisation that his company is insolvent.

2. The director makes the decision to cease trading immediately.

3. A letter is sent out to all creditors of the company as follows;

4. I generally recommend that all stock and other assets are removed from the company's premises and taken to a place of safe keeping. This is specifically to protect said assets from the risk of seizure by bailiffs acting on behalf of the landlord or another creditor. It is a responsibilty of the directors of the company that all creditors are treated equally; allowing one creditor to seize all the assets would constitute a breach of that responsibility.

There is no legal reason why the directors should not then convert the assets of the company into cash, provided that they account for all transactions meticulously and make all proceeds available to any liquidator who may subsequently be appointed.

5. 3 months after ceasing trading an application is made to Companies House using form DS01 for the striking off of the company. Notification of the application is sent to all creditors and other interested parties so as to comply with all relevent legislation.

And here is the big loophole...

All the law says is that all creditors must be notified that an application for striking off has been made. Nowhere does the law say that a creditor must be informed of the size of the debt owed.

In the specific case of HMRC the extent of any debt owed is generally self declared by the debtor by means of a tax return. Tax returns are due to be sent in by certain due dates. If a director applies to have his company struck off before that due date he has no obligation whatsoever to divulge to HMRC the extent of any debt.

What happens in these circumstances is that HMRC receive notification from the company that an application has been made for striking off but on checking their records they find that no monies are due. Therefore no objection to the striking off is made and it goes through automatically. If this happens the assets of the company technically become the property of the Crown. However, the Crown has no idea that the assets even exist! In reality, the directors get to keep them.

6. If HMRC are aware of monies owed by the company generally they will object to the striking off and ultimately may force the winding up of the company, resulting in The Official Receiver being appointed as liquidator.

7. The company will be liquidated by the OR in much the same way that an IP would do it, but at a saving to the directors of around £5,000 + VAT


A lot of rubbish has been said in this thread about the dubious legality of this strategy. Let me reiterate once and for all that it it is competley lawful in every way. Hundreds of people have benefitted from it and each of them owes me a pint. I hope to spend my dotage collecting my debts!


If any of you have a problem with the advice I give question the law, not me.

Don't shoot the messenger!