We're In A Mess, Please help

[benign01]

My wife and I are in trouble. Together we are partners in a non-limited company (so its not a LLP) and we owe the VAT £36,000 with little chance to pay. We have suffered a downturn in business over the past 18 months putting us into deep debt and whilst we have borrowed against our house (equity left c£30000, which we probably couldn't release based on loan to value etc) and soldiered on, we feel we cannot trade out of this

We have an arrangement to pay the VAT arrears but a new VAT bill is due soon and I don't think we are going to be able to pay it and have a business left . As we have had VAT arrears in the past and been behind their patience has run thin . Their field operative has threatened bankruptcy which I believe a simple statutory demand can action.

But besides the VAT we did borrow £50,000 from one of those new peer to peer funding sources where the public invest small amounts into your business. We did borrow the money for cash-flow, expecting a business upturn which never came and i would hate to let these people down. We are worried we are going to lose our house. We have 3 young children and the VAT are very aggressive. I have no idea what to do next! Dissolve the partnership and remove my wife from the business? can I do that? Go bankrupt now? Do an IVA? Sell the House at auction?

We have no ltd co protection but worse as we both work in the business the house is even more vulnerable. i am worried about the peer to peer loan as well

Any advice would be very much appreciated. We are currently paying the VAT £1000 a week out of our dwindling cash-flow and we have a bill of c £15000 coming up in early August, whicj if we pay would mean no cash to continue trading..

 

[SamStones]

Hi,

Firstly, sorry to hear about your problems. I'm sure the proper experts will be along shortly, but in the meantime the answers to these questions may help the proper experts:

1. To confirm: You're in a regular partnership that's not limited?

2. What line of work are you in?

3. Do you employ any staff other than yourself and your partner?

4. Does the business have any other debts other than HMRC?

5. Do you and your wife have any other personal debts? (Credit cards / loans etc).

6. Is the bill for c £15,000 for VAT or something else?

 

[bluelight]

Hi,

I'm also sorry to hear about your predicament (I know that's not going to help though!).

If I was in your position, (and I nearly have been!) I would seek the advice of a good local insolvency practitioner who is going to be able to look at all of your facts and figures (confidentially) and suggest a possible solution. (they may charge for this, but it may also be the best money you have ever spent!)

In any event it may take a little of the pressure from you as he (she) would position himself (or herself) in between you and the VAT as a start.

I am sure the peer to peer lending has a mechanism in place for such situations and they may be a little more sympathetic if there is a chance of your business's survival and a possible repayment plan is put in place.

You will also need to open up to the forum a bit more (in terms of your business plans and current trading) as there may be one or two good people on here who could suggest a business rescue package!????! (I hope).

GOOD LUCK!

 

[bluelight]

Just adding.

A certain Mr Alan R Price (on this forum) will be the gentleman (with a cool head and a keen eye for detail) hopefully who will be along shortly to steer you in the right direction.

 

[benign01]

Thanks for replying and your kind words. To answer samstones questions

1. To confirm: You're in a regular partnership that's not limited?
Yes that's right and with my wife

2. What line of work are you in?
I'd rather not say at the mo , but it is a "cash for..... business"

3. Do you employ any staff other than yourself and your partner?
Yes, one staff.

4. Does the business have any other debts other than HMRC?
There is the loan to the peer-to peer lending group, and we are a bit behind on our rates, due to an admin mistake on their part, but we have an arrangement for that .

5. Do you and your wife have any other personal debts? (Credit cards / loans etc).
yes HP x 2, catalogues and a first and second charge on the house

6. Is the bill for c £15,000 for VAT or something else?.
We have to pay the VAT £1000 a week for 22 weeks (formal arrangement) and also ensure that the next VAT bill is paid on time . But within that time frame we will have personal tax of £9, 000 to pay and we have in the business a total of £20000 for cash flow ie to trade. The VAT bill coming up will be £15000.

Our main concern is a statutory demand for bankruptcy where we would lose the house. if only one partner was in the business, we would be less vulnerable. but we are both in it and cannot hide behind any limited liability . BTW the house is worth £120,000 and we have a mortgage of £80000 on iy plus a second charge (which we used for the business) of £17000

Its possible we could trade out of this, but how long is a piece of string. if we fail to , we would lose everything..

 

[UK Contractor Accountant]

As a precautinary measure I would set up a limited conpany now, apply for a ltd co bank account, vat number & payroll scheme. Leave your wife from the partnership and set her up as a Director of the new co.

 

[Spongebob]

If your VAT bill for a quarter is £15k you must be turning over some serious dosh for a man and wife partnership with one employee. There must also be a healthy gross profit.

So what's going wrong?

My advice would be to have a chat with Alan Price, who specialises in this kind of situation. He's probably on holiday at the moment (he hasn't been away since May) but I'm sure he'll chip in on his return.

 

[SamStones]

As spongebag has said above you must have a decent turnover to get those sort of VAT figures, so what's going wrong?

I appreciate your current situation is a difficult one to trade out of from what you've said but I think it's important to figure out where you're going wrong so you can work out if it's fixable. You may have done this already, but if you haven't - do it now.

If you're a "cash for" business I'm presuming you buy off the general public and then sell on. When you sell it on you have to charge VAT on the sale but you're not paying any VAT when you originally buy the item, is that right? If so, I can understand your VAT bills being so large as you have few vatable expenses?

A couple of years ago I realised that I'd tried to expand too quickly and had increased my overheads by far too much as a result. We were losing money and on a slippery slope. Taking a step back and looking at what cuts we could make undoubtedly saved us. I effectively went back to a one man band in order to save the business. It was hard work, but its better to work hard for a profit than to be working twice as hard and making a loss.

 

[benign01]

decent profits but heavy overheads which i cant cut back on.

As a precautinary measure I would set up a limited conpany now, apply for a ltd co bank account, vat number & payroll scheme. Leave your wife from the partnership and set her up as a Director of the new co.

Isn't it too late for that. if you have debts can you do this?

 

[Spongebob]

Do you have a formal partnership agreement?

How does HMRC know the business? As 'Mr & Mrs J Bloggs t/a XXXX' or just 'XXXX'

It MAY be possible to extricate your wife from the partnership before the sh1t hits the fan, or even maintain that it was never a partnership at all, leaving you to fall on your sword alone. Not strictly lawful, ethical or moral, but desperate situations sometimes call for desperate measures.

Setting herup as director of a new company would then make perfect sense.


Note to everyone. NEVER set up a business as a partnership with your other half. It should be in one name only or even better a limited company.

 

[benign01]

They know us just as XXXX ie when they write to us but our accountant did do an agreement between us . certainly the income tax know us as a partnership but I do not think the VAT do. I will have to confirm with my accountant. Interstingly the business bank account is set up as a sole trader in my wife's name

 

[benign01]

and i read this
Position of creditors following dissolution

A dissolution will not, of itself, discharge any partner from a debt incurred prior to dissolution, unless he/she can show that the creditor has discharged him/her from the debt or accepted a substitute debtor

 

[Spongebob]

Did your accountant never suggest that you incorporate the business as a limited company in its early days?

He almost certainly should have done.

 

[Latebloomer]

I can't give you anymore advise than others have given. I have seen people go through such predicament and they a struggle in couple of years or so but things do get better. Don't lose hope

 

[benign01]

No he didn't but i should have known better, having been a director of a limited company before. My mistake. Will your idea work?

 

[benign01]

I can't give you anymore advise than others have given. I have seen people go through such predicament and they a struggle in couple of years or so but things do get better. Don't lose hope

Feel more optimistic this AM. Thank you Latebloomer. We are going to trade through this or die trying! Better that than trying to pull clever moves when its too late for that. Thanks everyone.

 

[SamStones]

Good luck!

Concentrate on your overheads... I know you said you can't move them, but you've got to try, that's what will make the difference.

 

[kulture]

Can you move the overheads into a limited company?

 

[Homer J Simpson]

As a precautinary measure I would set up a limited conpany now, apply for a ltd co bank account, vat number & payroll scheme. Leave your wife from the partnership and set her up as a Director of the new co.

Not sure that's a good move if they may both me made bankrupt. Will she even be able to operate as a director?

 

[MikeJ]

Not sure it's a good move as you seem to have built up debts of £100k. Is this a viable business?

 

[Spongebob]

With due respect to the OP, something doesn't add up here.

Even with no VAT inputs at all, the business must.be turning over £25k per month. Assuming a reasonable gross margin, it is difficult to believe that overheads can swallow everything: yet that is what you are telling us.

If you really can't reduce your overheads, then you need to jack it all in, find a house to rent, get a job, and go bankrupt.

If you can slash your overheads however...


...I'd start with the employee. Manage without them and save their wage.

 

[MikeJ]

Buy stuff for £20. Sell it for £25. Pay £4 in overheads. Then remember you have to pay the VAT man .....

 

[Spongebob]

Buy stuff for £20. Sell it for £25. Pay £4 in overheads..

Let's assume for a minute that that is indeed the business model.

Buy stuff for £20k per month, sell it for £25k, pay £4k in overheads.

Two obvious problems, the margin is too low and the overheads way too high.

If this model is anything like the reality the chances of trading out of this situation are less than zero. Bankruptcy would be a welcome relief.

 

[The Byre]

Just totting up the debts you have admitted to, it comes to £178,000, of which £81,000 is totally unsecured.

You have also hinted at additional debts for HP and catalogue purchases. And we have not yet heard about credit cards and other beasts lurking in the bushes!

In other words, it dosn't really matter what we say, or what an insolvency practitioner tries to do for you. You will still go out and buy something on credit this week.

You have to begin to realise that a decent car can be bought for £2,000 cash. Furniture does not have to be new and bought on credit. You have to live within your means!

Given nthe turnover you imply, you could easily do this. As Spongey says, this doesn't add up - until one realises that you are out of control!

Start by giving back all that stuff you bought on credit, inc. cars. Get an old banger and go round the charity shops for furniture. Do your one member of staff a favour and fire him/her (if you don't, he/she will be out of a job damn soon anyway!)

In short, sort your lives out! Either that or go bankrpt, lose the house, cars and furniture and get a job.

 

[MikeJ]

We don't know if the OP has built up a huge amount of stock, which is where the cash it tied up. There's several references to "cashflow", which would imply the business is profitable but the cash isn't available. However, some people use "cashflow" when they mean "cash".

It could be they need to hold a fire sale to realise some cash quickly, even if that means selling at a loss.

 

[Spongebob]

There's several references to "cashflow", which would imply the business is profitable but the cash isn't available. However, some people use "cashflow" when they mean "cash".

Surely that should should be "There are several references..."

 

[The Byre]

He don't talk propper, like as what you and I are do.

 

[kelvin1950]

Surely that should should be "There are several references..."

I do believe that you are persooing percuing pursooing following him around the forum.

 

[Chris Ashdown]

If you give more info on what you do and why you have got into this situation it may help people help you, they don't need to know your name or location but plenty of simular type companies on this forum may be able to give you strong advice on going forward

 

[Alan R Price]

Apologies for overlooking this thread. I haven't been away (thanks, @Spongebob) but have been busy with an exciting new business venture, amongst other things.

Having looked at the thread, it seems to me that IVAs, and possibly a PVA, might be the way forward. I think the figures are probably too small to justify a PVA but it is a possibility. The viability of any sort of VA will depend on what OP can offer creditors. Is the business viable, or is it really just a dead horse that he needs to stop flogging? What other potential sources of income do he and his wife have, that they might be able to use to contribute towards the debts?

The house has equity of over £20,000, so creditors will be looking towards that for payment, and if OP and his wife go bankrupt the trustee will, in all probability, be able to obtain an order for possession and sale. In an IVA, the creditors will require the equity to be realised in the fourth year and paid into the pot.

My advice is for OP and his wife to take advice from an insolvency practitioner. They will be able to obtain an hour or more's free consultation, which will help them identify the options and which is best for them.