LTD company with overdrawn DLA and HMRC debts

Discussion in 'Insolvency' started by MrsTumble, Jul 14, 2019 at 10:23 AM.

  1. MrsTumble

    MrsTumble UKBF Newcomer Free Member

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    We are a ltd company set up in 2013 as a consultancy. Myself and husband as directors, no other staff, no assets (other than fairly old lap tops).
    We were advised to set our business up as a ltd company rather than sole trader at the time of incorporation.

    We filed our 17/18 accounts in 19 and our accountants worked out we owed £12k, we are still trying to pay off HMRC £18k from the previous year and could not understand why our bill was so high.

    It wasn’t until we queried it with the accountants this time, who told us because we’d been taking our money as a directors loan, we therefore have a much higher tax bill. We haven’t been advised by our accountants that we were unable to take money from the business in this way previously. We have obviously been very naive thinking we can just take money out like this.

    We now have got to a situation where we are paying HMRC £2k a month and £500 per month for corporation tax, which has been crippling us. My husband has now lost his only contract and we are left with these huge monthly payments to HMRC (we have already had 3 late payments on our mortgage and household bills to keep up with the HMRC payments) and a £10k overdraft on the business account.

    We have looked at the Spongebob plan but as our last books show, we have had just over £40k in directors loans. Am I right in thinking that if we implemented the SB Plan that HMRC will come after us to pay back the Directors Loans personally? How would we do that?

    We don’t want to not pay what we owe but we simply cannot afford these payments, especially with no work coming in from next month...

    We had a meeting with new accountants who have said that HMRC can come after us personally for tax owed if the company closed/went insolvent. They said they could work out a payment plan with HMRC for what we owe but the longest time they’ve ever negotiated time to pay back was 18 months. For the amount we owe I can’t see that time period being achievable.

    We have been very naive and buried our heads in the sand. This situation is causing many sleepless nights...

    Any advice would be much appreciated please.
     
    Posted: Jul 14, 2019 at 10:23 AM By: MrsTumble Member since: Jun 10, 2019
    #1
  2. Gavin Bates

    Gavin Bates UKBF Enthusiast Free Member

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    Hi

    I think you should take advice from an Insolvency Practitioner as it may be the best way is to put the Company into liquidation and then agree on a payment plan for your Director Loan Account.

    Whilst you could do the SpongeBob plan this seems like a case in which HMRC would force a liquidation so you would end up dealing with the Official Receiver in any event.

    Regards

    Gavin
     
    Posted: Jul 14, 2019 at 10:35 AM By: Gavin Bates Member since: May 9, 2016
    #2
  3. MrsTumble

    MrsTumble UKBF Newcomer Free Member

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    Posted: Jul 14, 2019 at 10:52 AM By: MrsTumble Member since: Jun 10, 2019
    #3
  4. Mr D

    Mr D UKBF Legend Free Member

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    The personal taxation debt isn't affected by the business being liquidated. So you would need advice on personal debt too.
    If the business is liquidated (at the expense of the company or you personally) the directors loan account would need to be paid back, however by doing that yourselves the insolvency practitioner may be able to write part of the debt off.
    SpongeBob - either HMRC then wind the company up (at their expense) and as Gavin says official receiver involved. Or if HMRC do not wind the company up then overdrawn DLA gets put on your next self assessment tax form as untaxed income so generating a new personal tax liability.
     
    Posted: Jul 14, 2019 at 11:08 AM By: Mr D Member since: Feb 12, 2017
    #4
  5. MrsTumble

    MrsTumble UKBF Newcomer Free Member

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    Thank you for your quick replies.
    The new accountant we went to see told us categorically that if we ‘spongebobbed’ hmrc will still come after us for the vat etc owed, because we are directors.

    Our accounts are due to be filed for the latest year (we are a bit late with them) the new accountants want to file them and then make a payment arrangement with hmrc but I am not sure we will be able to afford these monthly repayments.

    It’s such a mess...
     
    Posted: Jul 14, 2019 at 11:35 AM By: MrsTumble Member since: Jun 10, 2019
    #5
  6. Gavin Bates

    Gavin Bates UKBF Enthusiast Free Member

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    Hi

    I think the point I am trying to make if you can't afford a payment plan with HMRC (and 18 months is the most you will get, 12 is more likely) then at least in liquidation the IP will normally accept a reasonable proposal for repayment based on what you can afford.

    Regards

    Gavin
     
    Posted: Jul 14, 2019 at 11:44 AM By: Gavin Bates Member since: May 9, 2016
    #6
  7. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    if you manage to get it dissolved HMRC vat and ctax debts dissappear. Your new Accountants are wrong in advising you that HMRC will still come after you for these debts.

    Following dissolution any amounts drawn out of the company not covered by salary and dividends will need to be declared on your next Tax Returns.
     
    Posted: Jul 14, 2019 at 12:05 PM By: UK Contractor Accountant Member since: Sep 18, 2013
    #7
  8. MrsTumble

    MrsTumble UKBF Newcomer Free Member

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    I’m not sure why they are telling us that then! We’d thought it wasn’t the case but they were adamant that nothing gets ‘written off’ so to speak.
    Perhaps we need to go and see someone else (we don’t seem to have much luck with accountants!)

    How do we try and get it dissolved? By not filing the accounts and hope to get struck off by Companies House?
    Or by writing to our creditors the Spongebob letter (it is only hmrc and Lloyds who we owe no others) and seeing if either of them liquidate us?

    Sorry if this is all very simple for you guys - but we are such novices and being blinded by fear.

    Very grateful for all your advice. Thank you.
     
    Posted: Jul 14, 2019 at 8:11 PM By: MrsTumble Member since: Jun 10, 2019
    #8
  9. Mr D

    Mr D UKBF Legend Free Member

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    Are HMRC aware that you have an overdrawn directors loan account?

    The bit about personally liable for tax debt is far as I know a proposal, not heard its been brought in yet. Perhaps that's what the accountant is referring to or perhaps they are making a judgement themselves. Debts owed to the company should be collected in part or full before its dissolved.

    There appears to be a method of companies house starting dissolving the company when you fail to file the annual statement companies file at year end.
     
    Posted: Jul 14, 2019 at 8:53 PM By: Mr D Member since: Feb 12, 2017
    #9
  10. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    I very much doubt you will be able to dissolve the Company as HMRC will object to it due to the outstanding debt they are owed and the issue of the DLA you owe the Company.

    They may well Lqe.

    Best to take advice from an IP.

    You should be able to reach a repayment plan to pay back some/all of what you can afford over a period of time with a private IP.
     
    Posted: Jul 15, 2019 at 2:13 PM By: Lisa Thomas Member since: Apr 20, 2015
    #10
  11. MrsTumble

    MrsTumble UKBF Newcomer Free Member

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    Thank you all so much. We are seeing a different accountant who can hopefully put us on the right road to sort out this mess and move forward.
    Will let you know.
     
    Posted: Jul 17, 2019 at 8:55 PM By: MrsTumble Member since: Jun 10, 2019
    #11
  12. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

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    Good luck - make sure the accountant is a licensed Insolvency Practitioner
     
    Posted: Jul 18, 2019 at 9:05 AM By: Lisa Thomas Member since: Apr 20, 2015
    #12
  13. Newchodge

    Newchodge UKBF Big Shot Free Member

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    Are you sure you understood the accountant correctly. If the company is dissolved the VAT debt, and any others, die with it.
     
    Posted: Jul 18, 2019 at 9:28 AM By: Newchodge Member since: Nov 8, 2012
    #13
  14. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    I think their Accountant didn't explain it very well - yes the the liquidator/Official Receiver will come after you for money. Its not the company taxes that they will try to claim back but your overdrawn Director loan account as a result of taking money from the company not supported by valid dividends or taxed salary via the payroll.
     
    Posted: Jul 18, 2019 at 9:39 AM By: UK Contractor Accountant Member since: Sep 18, 2013
    #14
  15. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

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    Way back in my days on the inside of factoring companies we were often told that we hadn't explained things very well if something had gone wrong but invariably it was the client who hadn't listened very well.

    I offer that as an anecdote as we seem to get an awful lot of threads where accountants hadn't explained things properly
     
    Posted: Jul 18, 2019 at 10:24 AM By: Ian J Member since: Nov 6, 2004
    #15
  16. Mr D

    Mr D UKBF Legend Free Member

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    Its polite not to suggest someone didn't listen very well.

    Saying that, the customer is always right in their own mind.
     
    Posted: Jul 18, 2019 at 10:27 AM By: Mr D Member since: Feb 12, 2017
    #16
  17. MikeJ

    MikeJ UKBF Big Shot Free Member

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    Does that have a personal guarantee? If so, then I'm afraid that debt doesn't die with the company.
     
    Posted: Jul 18, 2019 at 2:13 PM By: MikeJ Member since: Jan 15, 2008
    #17
  18. SteLacca

    SteLacca UKBF Ace Free Member

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    For the moment, correct, but don't forget that Government has been consulting on being able to make directors liable for 3rd party taxes (VAT, PAYE, CIS) in insolvency. Not yet resolved.

    https://assets.publishing.service.g...nsolvency_discussion_summary_of_responses.pdf
     
    Posted: Jul 18, 2019 at 4:10 PM By: SteLacca Member since: Jun 16, 2016
    #18
  19. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

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    to busy with Brexit at the moment to sort that out!

    They say this Autumn something could be in place but what are the chances of that happening?
     
    Posted: Jul 18, 2019 at 4:32 PM By: UK Contractor Accountant Member since: Sep 18, 2013
    #19