Overpaid Dividends??

**pmeswani** · 20 April 2010, 12:20

Originally posted by bmflex View Post

Hi,

I have a limited company that has been trading for approx 1year 9 months. My accountant has just sent me through my corporation tax liability which i dont think i have enough in the company account to pay for.

I also have overpaid dividends, and currently owe the comapny just over 7K. I have been told i will have to pay an additional 25% corp tax liability if i cannot repay this.

Firstly, I cannot afford to repay the amount owed. If i were to take out a personal loan, repay the debt then re-extract my funds in a month or so would this work? It would at least buy me some time to pay off the debt i owe the company.

I was considering closing the company and moving to an umbrella as the whole process seems easier. What would be the implications of the unpaid director loan and the fact i cannot afford to pay the entirity of my corp tax? I could probably afford to pay 80% of it.

Thanks guys!

There is nothing stopping you from taking out a personal loan for that reason, as long as the loan is paid into your personal account and you transfer the money to the business (Audit Trail & Fraud comes into mind). I wouldn't mention to the bank that you will be using the money to pay off a business loan though as this may lead to the loan being rejected.

You have to ask yourself, why did you allow yourself get into this financial mess to start with? If you were unsure how much you should have taken, you should have spoken to your accountant and worked out how much you could take.

Good luck.

**DaveB** · 20 April 2010, 12:27

Originally posted by bmflex View Post

Hi,

I have a limited company that has been trading for approx 1year 9 months. My accountant has just sent me through my corporation tax liability which i dont think i have enough in the company account to pay for.

I also have overpaid dividends, and currently owe the comapny just over 7K. I have been told i will have to pay an additional 25% corp tax liability if i cannot repay this.

Firstly, I cannot afford to repay the amount owed. If i were to take out a personal loan, repay the debt then re-extract my funds in a month or so would this work? It would at least buy me some time to pay off the debt i owe the company.

I was considering closing the company and moving to an umbrella as the whole process seems easier. What would be the implications of the unpaid director loan and the fact i cannot afford to pay the entirity of my corp tax? I could probably afford to pay 80% of it.

Thanks guys!

Well you either do or do not have enough to pay the CT. Which is it? I'll assume you don't.

How much is the company short of to pay it's CT liabilities?

I suggest you take out a personal loan to pay back what you owe to the company and put the money towards paying the CT, it's probably the reason there isn't enough in the co. account to start with.

HMRC wont allow the co. closure to go through if you still owe them money. The forms for company closure require a declaration that you have informed any creditors of the intention to close the company and that you have paid off any outstanding debts. Making a false declaration is an offence that you can be prosecuted for.

**MaryPoppins** · 20 April 2010, 12:30

Originally posted by bmflex View Post

Hi,

I have a limited company that has been trading for approx 1year 9 months. My accountant has just sent me through my corporation tax liability which i dont think i have enough in the company account to pay for.

I also have overpaid dividends, and currently owe the comapny just over 7K. I have been told i will have to pay an additional 25% corp tax liability if i cannot repay this.

Firstly, I cannot afford to repay the amount owed. If i were to take out a personal loan, repay the debt then re-extract my funds in a month or so would this work? It would at least buy me some time to pay off the debt i owe the company.

I was considering closing the company and moving to an umbrella as the whole process seems easier. What would be the implications of the unpaid director loan and the fact i cannot afford to pay the entirity of my corp tax? I could probably afford to pay 80% of it.

Thanks guys!

Sounds like there are two seperate issues here.

One is that you can't pay all of your CT liability. Contact HMRC immediately and set up a payment plan for the remainder, they should accomodate you in that.

Two is that your accountant will now have to record that you have a Directors Loan of around £7k. IIRC, if you can't repay this in full within 9 months of your accounting period ending (which is probably around about now by the sounds of it, if your CT is due?), you are liable for a further 25% as part of your CT, which is refunable once the DL is repaid.

This is all from hazy memory though so obviously please check the facts Directors Loans.

Umbrella doesn't need to be your only option - perhaps next year you will be a lot more careful what you take...good luck

**Robot** · 20 April 2010, 13:23

Perhaps more problems ...

As said above

a) Overdrawn loan account
Section 419 tax
BIK as loan could be over £5K

Then you MIGHT have

to revise a P11d (to 5th April 2009) due to BIK
to revise your personal tax return (to 5th April 09) due to the above

Potential penalties, certainly interest on late payment of tax/class 1a NIC.

Wonder if the accountant spoke to you before sending you the accounts. Wonder if they explained the HMR&C payment plan

It would be very bad practice if they didn't.

Good luck

Robot

**Wanderer** · 21 April 2010, 22:56

Welcome bmflex and sorry to hear that you have got yourself in a pickle.

Your company has to pay it's taxes. You can't just shut it down and not pay the Inland Revenue - I can assure you that they won't like it. Your best bet is probably:

1. Get a loan and pay your company the money you owe it. If you can borrow money from the company (and the company can still pay it's taxes) then that might be a good bet as your company can charge you a lower interest rate than the loan sharks. There is a tax implication, speak to your accountant and get them to go through the options.

2. Don't go umbrella. If you do then you will pay a lot more tax than do you by taking dividends via your LTD. Ask your accountant to do the calculations for you or use one of the contractor calculators on the net. Be wary of BS umbrella company calculators which make all sorts of dodgy assumptions though.

3. I hate to say this, but you should also have a serious think about if contracting is right for you. If you aren't saving any money in your war chest then what are you going to do if you end up with no work?

Good luck!

**lje** · 22 April 2010, 10:54

I might be a lone voice here but it sounds to me that an umbrella company might be a good option for you in the future. You will pay more in taxes but it will stop you from getting in a pickle - what you get in every month will be yours and you won't owe any extra. If you find it difficult (or uninteresting) to keep on top of your company's liabilities then going with an umbrella could give you peace of mind.

**Alan @ BroomeAffinity** · 22 April 2010, 14:07

HMRC will give you time to pay if you ask nicely but if you are 1yr and 9mths in you will only be paying tax for y1. You should really have provisioned for the tax on the next 9 months profits as well.

The problem is you've waited too long to seek advice. IMO you should have a good idea month-by-month what your CT position is and certainly you shouldn't be waiting until 9 months after your year end to assess your liabilities. Did your accountant only become involved very recently?

**MarillionFan** · 22 April 2010, 15:49

Why can't you pay it back?

So either
a) You took too much and you're rate is to low, at which point £7k over is quite a cockup if you're not really earning much
b) If you're on good wedge, then £7k is 4 weeks work?
c) You're now benched?

BTW. If you need a fast turnaround then use a credit card and pay it.

**Jeebo72** · 22 April 2010, 16:30

Originally posted by MarillionFan View Post

Why can't you pay it back?

So either
a) You took too much and you're rate is to low, at which point £7k over is quite a cockup if you're not really earning much
b) If you're on good wedge, then £7k is 4 weeks work?
c) You're now benched?

BTW. If you need a fast turnaround then use a credit card and pay it.

I suspect it's gone on hookers and coke. Earning 400 a day and spending 400 a day.

Unbrella is the way to go for you... as MF says something not right, you can make 7 in a few weeks, get a loan, credit card easy ... stupid place to get to , but easy to resolve.

Overpaid Dividends??