Unpaid salary from time at a startup

[taro211]

Hi,

I worked with an early stage startup from December 2016 to May 2017, and while I was paid for December, Januarys payment was late, as was the next month, and I soon realised I needed to get out of there in May, short 5 months salary (due to some complications with their funding).

I remained patient in my new job and didnt seek legal action as it was just the two founders left at this point and they were not wealthy and the company had no assets, so legal action would have just guaranteed no payment and shut down the company. I was happy to wait on the off chance that the investor did finally come through.

Despite over a year of news that the funding was still looking promising from the investor, I heard last week that it had finally fallen through and that the investor has pulled out, so the company will become insolvent shortly and be wound up. The founders have also personally suffered hugely, and I remain on good terms with them, I blame only the investor for the course of events.

I'm wondering what my best course of action is at this point. I have informed HMRC that I didnt receive the payment for the 5 months salary even though it was reported to them that I had, so I'm hoping this may provide some kind of tax break. I'm also wondering if I now may be entitled to compensation for the lost pay, as described on the gov UK "claiming money owed to you - your rights if your employer is insolvent" advice page (can't link, sorry).

Any and all advice appreciated!

 

[Scalloway]

The link only applies to people who are employed by the business at the time it ceases trading. You are just another creditor of the business.

https://www.gov.uk/your-rights-if-your-employer-is-insolvent

 

[taro211]

Oh right, I didn't realise. Is there any protection or compensation available for cases like this? Is there a body I should speak to for advice?

 

[Mr D]

5 months missing out of 6 months work is quite a lot of work to do for free. Did you not push for payment while still employed?

 

[taro211]

Of course, but at the end of January it was just a very slight delay in payment, in Feb it was an issue and they were full of apologies, in march everyone was getting nervous and I was even taken to the investors house to meet him in person for assurance that it would all be OK and my April I was looking desperately for a job, which arrived in May.

It was an expensive lesson learnt, and one I don't intend on making again. In hindsight I should have been a lot less trusting and should have walked as soon as the first month's pay was late.

 

[Newchodge]

You can take a small claims action against the compamny. If the company has no money, that id=s good money agter bad.

Sorry

 

[TODonnell]

Something someone with an ... interesting past in the construction industry told me once:

"We were onsite and the word came through on Friday that wages were delayed. So we downed tools and left.

The wages was paid.

We didn't show up for work on Monday."

No money = no workee.

Startup culture has promoted the idea that you stick with a pig and maybe you'll get shares and such, but you can't eat dreams. Pros get paid. End of [folds arms].

 

[mattk]

Hi,
I have informed HMRC that I didnt receive the payment for the 5 months salary even though it was reported to them that I had, so I'm hoping this may provide some kind of tax break.

Sorry to hear about your predicament.

With regards the above, do you have payslips, a P45 or P60 which shows the amounts you should have been paid, but didn't?

It seems strange their would report to HMRC without actually making the payroll payments.

 

[Newchodge]

I have informed HMRC that I didnt receive the payment for the 5 months salary even though it was reported to them that I had, so I'm hoping this may provide some kind of tax break.

Why didn't you tell HMRC when you got your fraudulent P60 or P45 that it was fraudulent? If you didn't get those documents, how do you lnow what was reported?

 

[taro211]

With regards the above, do you have payslips, a P45 or P60 which shows the amounts you should have been paid, but didn't?

It seems strange their would report to HMRC without actually making the payroll payments.

Yes, I have payslips and HMRC were reported that I was paid. I assume this was done because there was never a doubt in their mind that that would pay me, it only now turns out that it's no longer the case of course.

The link only applies to people who are employed by the business at the time it ceases trading. You are just another creditor of the business.

I checked today with the redundancy service and they disagreed around this actually.

They said: You may still be able to claim, as the Insolvency Practitioner would be able to verify your claim by examining the Payroll Records for the time of your employment.

 

[Newchodge]

I assume this was done because there was never a doubt in their mind that that would pay me

Or so they could claim your wages against their tax liability! Do you show in the accounts as a creditor?

 

[taro211]

Or so they could claim your wages against their tax liability! Do you show in the accounts as a creditor?

How would I check this?

 

[Scalloway]

You need to get in touch with the liquidator. If you want to get anything out of this they need to be aware you are a creditor of the company.

 

[taro211]

Oh I will, but one hasn't been appointed yet as they're not as of yet insolvent, they need to be made insolvent by a creditor forcing them to do so, which they said is likely to happen shortly as HMRC are knocking on the door looking for payment.

 

[Scalloway]

A liquidator will only be appointed if the company still has money to pay them. £5,000 has been quoted in the past as a typical fee but it depends on how complex the financial situation is. Quite often what happens if a company is totally broke it lingers on for a few years before Companies House strike it off.

Whether HMRC appoint a liquidator will also depend on how much the company owes them.

I suggest reading this thread to get an idea of what can happen.

https://www.ukbusinessforums.co.uk/...ich-to-pay-an-insolvency-practitioner.316523/

 

[mattk]

Yes, I have payslips and HMRC were reported that I was paid. I assume this was done because there was never a doubt in their mind that that would pay me, it only now turns out that it's no longer the case of course.

This is incredibly strange. I'm not sure how you will be able to prove to HMRC that you weren't paid, even though you received a payslip. Technically, they should be reporting to HMRC AFTER each payroll run, therefore after you have been paid.

I think you need to call HMRC and explain the situation. Depending on your income from the beginning of the tax year 2016/17, you should be due a rebate.

 

[Scalloway]

Technically, they should be reporting to HMRC AFTER each payroll run, therefore after you have been paid.

If you read through other posts in this forum you will see it is quite common for companies whose cash flow is tight to advise unpaid wages be credited to a creditor account for actual disbursement a later date.

When I run a payroll I do the RTI return then pass the payslips to the manager for the actual payment to be made, never the reverse.

 

[NicoJ]

Technically, they should be reporting to HMRC AFTER each payroll run, therefore after you have been paid.

No RTI is sent to HMRC on or BEFORE the pay date. Technically you could be fined if you paid the employee and then sent the RTI as it would be late.

I agree with calling HMRC though and explaining the situation, I've never come across this before so I'm not sure what they will say.

 

[Mr D]

Oh I will, but one hasn't been appointed yet as they're not as of yet insolvent, they need to be made insolvent by a creditor forcing them to do so, which they said is likely to happen shortly as HMRC are knocking on the door looking for payment.

Unless they owe enough and have sufficient assets to make it cost effective then winding up is not viable. How much do they owe HMRC?
If its only a few thousand then HMRC may decide not to wind them up. In which case creditors can keep chasing the company until the directors arrange to dissolve it.

 

[taro211]

Unless they owe enough and have sufficient assets to make it cost effective then winding up is not viable. How much do they owe HMRC?

Not sure, i'll find out. If HMRC don't pursue is there any way for me to force the issue without expensive legal proceedings?

I think you need to call HMRC and explain the situation. Depending on your income from the beginning of the tax year 2016/17, you should be due a rebate.

Thanks, I have submitted an incorrect tax payment submission online to them, but maybe i'm better off calling them given the issue.

 

[Mr D]

If no creditor winds the company up then up to the directors to dissolve it or companies house to dissolve when paperwork is not filed.

Any creditor has the issue you have of whether its worth spending money on expensive legal proceedings (winding up is not cheap).

If the company has sufficient cash / assets the directors could use an IP and dissolve the company for a mere few grand or more. If not sufficient money / assets then it won't go down the IP route without a creditor paying to do so.

 

[taro211]

Apparently they owe HMRC about £10k, is that enough to have them force liquidation?

 

[Newchodge]

Are there any assets that would be realised to make it worth anyone's while to pay for the process. If not, then why would anyone send good money after bad?

 

[taro211]

Zero assets, but would HMRC know that? Would they not just follow a process?

 

[Mr D]

Zero assets, but would HMRC know that? Would they not just follow a process?

For £10k is it worth them spending a few grand?
HMRC will presumably have a process, whether that process will spend much money to maybe recover a little or maybe none of that £10k....?

 

[Scalloway]

From posts in the Insolvency Forum HMRC will object to dissolution if they are owed £10,000 but will not take it further. If the directors owe money to the company HMRC will seek to have them declare the money withdrawn as income and pay tax on it. They may also pass the debt to debt collectors who will harass the directors but they have no legal obligation to pay anything unless they owe the company money.

 

[taro211]

From posts in the Insolvency Forum HMRC will object to dissolution if they are owed £10,000 but will not take it further. If the directors owe money to the company HMRC will seek to have them declare the money withdrawn as income and pay tax on it. They may also pass the debt to debt collectors who will harass the directors but they have no legal obligation to pay anything unless they owe the company money.

So from my perspective that means if they don't pursue it they'll never become insolvent and therefore i'll never be able to claim any compensation back for lost wages?

By the way, I contacted HMRC about the situation, they said that as the payments were reported as being made the best way to remedy is for them to send an EYU (end of year update I think) to HMRC correcting the fact that I actually wasnt paid for those months. Once that happens I should automatically have any rebate applied, which at least is some compensation.

 

[Scalloway]

What normally happens is the company is listed for strike off either by the directors or Companies House. HMRC object if they are due money but take no further action as it is not worth their while. After a time (probably a year or two) Companies House strike the company off.

 

[Newchodge]

So from my perspective that means if they don't pursue it they'll never become insolvent and therefore i'll never be able to claim any compensation back for lost wages?

By the way, I contacted HMRC about the situation, they said that as the payments were reported as being made the best way to remedy is for them to send an EYU (end of year update I think) to HMRC correcting the fact that I actually wasnt paid for those months. Once that happens I should automatically have any rebate applied, which at least is some compensation.

They can only do an EYU if they are still in existence, and are prepared to do it.

 

[postbrexitandbeyond]

Sad to hear it man, I hope you get the justice you deserve, because none should pass for such predicament. They owe you money, they must pay for it. Period.