Tax evasion - where should the money go?

[Robert74]

I have a bit of a strange situation for a 'freind' with a limited company. We will call his company company A!

Company A was owed £1000 by Company B (the MD of which is Person B)

Company B went bankrupt several months ago owing the £1000 but with no real other debtors, so company A is planning to write off the bad debt.

Company A just recieved a phone call from Person B appologising for going under still owing money and offered to personally pay back the money at £250 a month from his own money as he now has a new well paid job. They are both small companies and had a good relationship.

Should this £250 go into the buisness bank account? I would assume so however there is no invoice or service provided to Person B only to the non existing company and person B has offered to pay it direct to Person A. It is also unclear if he plans to pay back the full amount.

 

[Zeno]

Without getting bogged down in the legal side, it would seem pretty clear cut that the money should go to the company with anything else being tax evasion as you have pointed out. HMRC will not care where the consideration came from in so much as the debt is, at least partially being paid.

However, no doubt the lawyers could make an interesting meal of this perhaps arguing that is the director is undertaking to pay this debt he should do so for the others etc etc.

 

[elaine@cheapaccounting]

To the company and good on Person B for paying it back.

 

[Robert74]

Annoyingly there are no other debts outstanding!

To be honest I have already given him the company bank detials rather than my own ( I mean my friends!) as for the sake of a few pound tax I didnt fancy going to jail, just wondered if that was the right thing to do.

 

[Jenni384]

Yep, the money is owed to Co A, and so, wherever it comes from, should be paid to Co A and recorded as a normal sales receipt.

 

[Jaydee]

Company B went into liquidation when it only owed £1,000 and that was to a friend

The IP should win an award for salesperson of the year in getting that one agreed by person B!

 

[nigelmarsh]

If there was an IP involved , im sure that £1000 , would be paid to the IP first for his time with any amount left being paid to the government followed by distribution to the creditors .

This sounds like its a very small issue , does the Liquidated company only owe £1000 or does it owe other creditors also (who are not friends) ?

Person B should show no preferential treatment to any creditors !!!

I would therefore suggest person B simple buy person A a private drink off any books. as a personal gift with no relevance to the Liquidated company .

If an IP is involved such a transaction could be reversed and order you to pay back such a receipt !!

 

[fathippy]

Company A has a lease which a director has to guarantee personally. This lease gets assigned, but the guarantee cannot be removed. New tenants indemnify the guarantee. Further on down the line the new tenants default, so the guarantee is called upon. Likewise the indemnity is called upon.

In the following situations where does the money go/come from.

1) the director makes good the liability, but cannot enforce all or some of the indemnity leaving himself personally out of pocket

2) the director and the "new" tenants agree a settlement up front, but the director is then able to find a premium tenant, and/or negotiate down his settlement with the landlord, so he is consequently up money.

I guess the basic question, is given it is specifically a personal guarantee and a personal indemnity albeit with respect to a business asset, should any of those transactions go through the business books, or should all of them do so?

 

[nigelmarsh]

if new tenant the new tenant agrees to pay off the areas of the lease , the lease can then be assigned to the new tenant and the lease continues intact.

or

the company is credited and the Individual is invoice as guarantor , and settlement of the invoice , the lease continues to new tenant without liability

 

[David Griffiths]

So you are saying that if a person associated with an insolvent company chooses to pay a company debt personally, an IP could insist that it is reversed?

Can you actually provide an authority for that opinion?

Personally, I think that's wrong but look forward to you proving otherwise.

 

[nigelmarsh]

obviously it is open to argument and dependant on the paper trail . If an individual pays the debt of the company the individual becomes a stakeholder in that company in the form of a creditor or a shareholder . as such when the company is insolvent a strict list of priority must be observed when paying of creditors . There for the individual can not simple pay of the creditors they choose .

Instead the creditor should raise a credit note to the company and re invoice the individual under the guarantee obtained from the individual if the company was to fail in its obligations to settle debts when becoming due .

 

[fathippy]

I think the original question was slightly more generic than the answers, which is merely that since personal guarantees are exactly that - personal and specifically not connected to the company, then why should any cash surplus / shortfall be associated with the company. Granted the director may be correct in invoicing the company for any loss incurred on the guarantee, but does the company have a right to request (or even know about) any surplus created.

Also in the first case surely the existence of the guarantee must be properly provisioned for in the accounts, ie shown as a potential liability with a prudent valuation attached.

I guess this is one of those things that falls firmly in the "off balance-sheet" category, and whose existence is often ignored or abused (see share options etc) and which in some cases (Enron et al) can come back to haunt in a big way.

 

[fathippy]

apologies - misread the order of the posts - the last two were on the previous case in point - my mistake.