Before I begin please let me preface my post by fully acknowledging that I acted like a pratt, and that I am responsible for the mess I got myself into. I very much doubt that I am alone though. ( or thats gonna stop the pot shots)
I was a contractor for five years. During this period I was very successful, my biggest break between contracts was a week, and my rates rose year on year by a substantial amount. I had an accountant, and mostly ensured that the VAT returns went in on time, as I had heard stories of the unlimited powers and sadistic tendencies of the VAT man. I was however complacent, to borderline blase about the Inland Revenue, and what would happen if he became too interested in the books of the company. It seemed to me that I just had to ensure that once a year the accountant did the books and I had to find the money for the corporation tax. The smart thing to do would have been to put aside a percentage of the companies earnings over the year. Instead I took the fun route, several overseas holidays per year (five star hotels only of course), lots of expensive restaurants, running up huge tabs whilst clubbing with models and celebrities in many of the best private members clubs London has to offer and the obligatory purchase of the convertible BMW. I financed some of this and the tax by taking out loans, which didn't worry me as the repayments equated to a day and a half's pay per month.
Then....I lost my contract, precisely at a time the market contracted. I ended up out of work for six months and running up massive debts to cover the existing loans and mortgage etc. When I finally got a contract it was at a much reduced rate and I found myself struggling to keep up loan and credit card repayments, let alone keep up with the financial reponsibilities of the company.
Eventually I took a permanent job, got a secured loan to cover the personal debts and tried to close the company. What I hadn't realised was that companies house had not received the annual return for that year, and before I got a chance to close it the company was struck off. At this point the official receiver got involved.
To be fair, the official receiver was very helpfull. I went through an interview and explained the circumstances I had found myself in. He went through my statement point by point and explained what might happen next. I actually left his office quite relieved as I thought things could have been much worse.
With the official receiver closing the company the money I owed the VAT man was written off. Unfortunately the Inland Revenue went through the company books and decided that all the money I had taken out of the company was personal Income, and therefore a personal debt and liable for income tax. They then performed some "Voodoo Mathematics" and came up with a figure of £80000 that I owed them.
After many sleepless nights, and much protracted argument with the Inland Revenue about what constituted income, and how much I owed them I eventually went for a meeting at their offices. After perhaps the most uncomfortable hour of my life I eventually offered the tax man £15000, which was just under half the figure my accountant said that the company might have owed them. Despite me telling the tax man about the state of my personal finances and my credit rating the Tax man declined my offer and asked for £20000. This I managed to raise through yet another loan, and maxing another credit card (I know, I know, but it was a preferable option to bankruptcy). We were under a lot of financial pressure after that, but a family bereavement which led to an unbudgeted holiday pushed my wife and I over the edge, so after having begun to restore some sense of order to the finances we found ourselves with more going out than coming in. This has forced me to relaunch myself back in to contracting as the only realistic way we are ever going to repay this mountain of debt.
This leads me to the point of the above story. As part of my arrangement with the official receiver I had to agree to a voluntary undertaking not to act as a director in a company for the next few years. I was originally intending on working under a friends company, but on the advice of his accountant he has (very reasonably) withdrawn the offer for me to do this. I am now in a situation in which I need to petition the court for "Permission to Act" as a director.
As part of this I need to provide a reason why I need to become a director of a company again. Has anybody been in a similar situation? Can anybody give me a reason why an IT contractor should need to work through a Limited Company other than it's more "tax efficient"
I was a contractor for five years. During this period I was very successful, my biggest break between contracts was a week, and my rates rose year on year by a substantial amount. I had an accountant, and mostly ensured that the VAT returns went in on time, as I had heard stories of the unlimited powers and sadistic tendencies of the VAT man. I was however complacent, to borderline blase about the Inland Revenue, and what would happen if he became too interested in the books of the company. It seemed to me that I just had to ensure that once a year the accountant did the books and I had to find the money for the corporation tax. The smart thing to do would have been to put aside a percentage of the companies earnings over the year. Instead I took the fun route, several overseas holidays per year (five star hotels only of course), lots of expensive restaurants, running up huge tabs whilst clubbing with models and celebrities in many of the best private members clubs London has to offer and the obligatory purchase of the convertible BMW. I financed some of this and the tax by taking out loans, which didn't worry me as the repayments equated to a day and a half's pay per month.
Then....I lost my contract, precisely at a time the market contracted. I ended up out of work for six months and running up massive debts to cover the existing loans and mortgage etc. When I finally got a contract it was at a much reduced rate and I found myself struggling to keep up loan and credit card repayments, let alone keep up with the financial reponsibilities of the company.
Eventually I took a permanent job, got a secured loan to cover the personal debts and tried to close the company. What I hadn't realised was that companies house had not received the annual return for that year, and before I got a chance to close it the company was struck off. At this point the official receiver got involved.
To be fair, the official receiver was very helpfull. I went through an interview and explained the circumstances I had found myself in. He went through my statement point by point and explained what might happen next. I actually left his office quite relieved as I thought things could have been much worse.
With the official receiver closing the company the money I owed the VAT man was written off. Unfortunately the Inland Revenue went through the company books and decided that all the money I had taken out of the company was personal Income, and therefore a personal debt and liable for income tax. They then performed some "Voodoo Mathematics" and came up with a figure of £80000 that I owed them.
After many sleepless nights, and much protracted argument with the Inland Revenue about what constituted income, and how much I owed them I eventually went for a meeting at their offices. After perhaps the most uncomfortable hour of my life I eventually offered the tax man £15000, which was just under half the figure my accountant said that the company might have owed them. Despite me telling the tax man about the state of my personal finances and my credit rating the Tax man declined my offer and asked for £20000. This I managed to raise through yet another loan, and maxing another credit card (I know, I know, but it was a preferable option to bankruptcy). We were under a lot of financial pressure after that, but a family bereavement which led to an unbudgeted holiday pushed my wife and I over the edge, so after having begun to restore some sense of order to the finances we found ourselves with more going out than coming in. This has forced me to relaunch myself back in to contracting as the only realistic way we are ever going to repay this mountain of debt.
This leads me to the point of the above story. As part of my arrangement with the official receiver I had to agree to a voluntary undertaking not to act as a director in a company for the next few years. I was originally intending on working under a friends company, but on the advice of his accountant he has (very reasonably) withdrawn the offer for me to do this. I am now in a situation in which I need to petition the court for "Permission to Act" as a director.
As part of this I need to provide a reason why I need to become a director of a company again. Has anybody been in a similar situation? Can anybody give me a reason why an IT contractor should need to work through a Limited Company other than it's more "tax efficient"
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