Creditors Voluntary Liquidation

[MercladUK]

Excellent news! I am going to take all my money in the company as dividends - then go into liquidation and forget the CT. I did not know this was possible. Cheers

sigh

[BrilloPad]

But if you don't have teh CT to cover the dividends they will be declared illegal

Don't be such a spoilsport. I am going to market the scheme. These time next year I'll be a millionaire....

[tractor]

.....

Don't be such a spoilsport. I am going to market the scheme. These time next year I'll be a millionaire....

It seems there are enough gullible idiots around to make this a distinct possibility. You could start with all those who come here for advice and spend the next 12 pages arguing about it

[SimonMac]

Don't be such a spoilsport. I am going to market the scheme. These time next year I'll be a millionaire....

Don't be a big silly then

[northernladuk]

CT is a company tax, not a personal tax.
Directors Loan and/or Illegal dividend payments are different.

You stated he will have to pay CT over 3 years, this is incorrect. The company pays CT and it is insolvent.

Step away from the keyboard.

[Contreras]

If the dividends were illegal, then you'll need to get HMRC to re-open your self assessment so you can correct them. I'd guess that they would be reclassified as income, so you'll need to make sure the correct amount of NICs and PAYE is deducted.

The dividend was used to cancel a loan, so (unless I missed a crucial point buried in the thread somewhere) therefore no cash transfer and if re-assessed it could not be deemed salary.

The company is insolvent because dividends in excess of available reserves were taken. If these illegal dividends are reversed, then the directors owe the company money, and the liquidators can chase the directors to repay enough money to the company to repay the tax debt.

Agreed. If the dividend were reversed then technically the company is solvent again, albeit without the "cash at hand" needed to meet its tax bill.

I agree, that's why I said "repay money to the company", so the company can repay the CT. Separate legal entities.

Where the OP has gone wrong imo (apart from paying illegal dividends) is in getting a liquidator involved. Depending on how aggressive they are they may chase him, or they may drop it.

Separate legal entities yes, but HMRC would be entitled to call in the director's loan directly anyway.

[tractor]

......

The dividend was used to cancel a loan, so (unless I missed a crucial point buried in the thread somewhere) therefore no cash transfer and if re-assessed it could not be deemed salary.



Agreed. If the dividend were reversed then technically the company is solvent again, albeit without the "cash at hand" needed to meet its tax bill.



Separate legal entities yes, but HMRC would be entitled to call in the director's loan directly anyway.

From the tax manual...

Where a dividend is paid and it is unlawful in whole or in part and the recipient knew or had reasonable grounds to believe that it was unlawful then that shareholder holds the dividend (or part) as constructive trustee in accordance with the principles stated by Dillon L J in Precision Dippings Ltd v Precision Dippings Marketing Ltd [1986] 1 Ch at page 457. Such a dividend (or part) is void for the purposes of both the IT charge on distributions under ITTOIA05/S383 and the long abolished ACT charge under ICTA88/S14. The company has not made a distribution as a matter of company law, and so the dividend does not form part of the recipient's income for tax purposes. The company has not parted with title to the sum that it purported to distribute, which as a consequence remains part of its assets under a constructive trust (see also Ridge Securities Ltd v CIR (1964) 44TC373). Where the company concerned is a close company, it is regarded as having made a loan to the shareholder by virtue of CTA10/S455(1), thereby triggering a charge under CTA10/S455(2). Relief would however be available under CTA10/S458 where the dividend is repaid to the company. That repayment might be by cash or cheque, or by a suitable entry in the loan account.

There you have it, chapter and verse. Emphasis is mine.

It is the Insolvency Practitioner's responsibility to reverse the dividend payment and convert it to a loan.

[MercladUK]

Step away from the keyboard.

I am afraid you are completely out of your depth here sunshine.

nice try

[BrilloPad]

It seems there are enough gullible idiots around to make this a distinct possibility. You could start with all those who come here for advice and spend the next 12 pages arguing about it

Only 10 pages so far. Surely there can't be any more posts...

[TheFaQQer]

The dividend was used to cancel a loan, so (unless I missed a crucial point buried in the thread somewhere) therefore no cash transfer and if re-assessed it could not be deemed salary.

I stand corrected.

It would be converted to a loan with BIK implications that would attract additional taxes that need to be paid by the individual instead.