Cannot pay VAT/PAYE due to Director's Loan - Need Advice !

[TheFaQQer]

I worked as a contractor under my limited company formed since since Aug 2013. I had a 6 month contract which ended in Feb 2014 and was uptodate with my VAT/PAYE up until the most recent bill. During the course of my work, i had taken up directors loan which amounts to just under £5k and the VAT/PAYE is around £4k. I am currently still looking for work but haven't been so successful and have decided to apply for benefit in order to pay bills for now.

My accountant has advised me that the directors loan needs to be paid soon so that i can pay HMRC the VAT/PAYE and need to call them to discuss a payment option. How long can i request them to delay the payment?

Any advice would be much appreciated.

However did you intend to pay this money back to the company? Last year, you said

I'd rather avoid the hassle now and just stick with declaring inside ir35 to my accountant and he can sort out my PAYE.

So, if you were inside IR35, then you take the money out of the business as taxable income and pay the tax. If that was the case, then the only way that you could have had enough money in the company to take a £5k loan would have been to have taken the money that was a forward liability to HMRC.

Did you discuss this with your accountant at the time, and what did they say?

[ASB]

However did you intend to pay this money back to the company? Last year, you said



So, if you were inside IR35, then you take the money out of the business as taxable income and pay the tax. If that was the case, then the only way that you could have had enough money in the company to take a £5k loan would have been to have taken the money that was a forward liability to HMRC.

Did you discuss this with your accountant at the time, and what did they say?

That does tend to make me view it a bit differently......

[deeniguy]

However did you intend to pay this money back to the company? Last year, you said



So, if you were inside IR35, then you take the money out of the business as taxable income and pay the tax. If that was the case, then the only way that you could have had enough money in the company to take a £5k loan would have been to have taken the money that was a forward liability to HMRC.

Did you discuss this with your accountant at the time, and what did they say?

Yes, you are correct, i've been paying myself salary every month and the directors loan i started borrowing around December and continued every month until Feb expecting to pay the final loan by March/April (I took multiple director loans totalling just under 5k). Everytime i used a directors loan i paid it off when my salary was due, however the last directors loan was taken to pay unexpected bills and also investment in a stock, which you were also correct to point out. Unfortunately, the stock didn't return as expected, hence the delay in payment.

I understand it was foolish to borrow money to use for such activities but i've learnt my lesson now and vow never to risk going down this road again. If all goes well, i should be able to pay off the taxmans money in 2-3 months time, but of course that's not guarunteed. In the meantime, im doing all i can to find another contract job to pay this off ASAP.

Just to let you know, my accountant knew everything about my situation with IR35 and the fact that i take out director loans as described above. Never once did they discourage but did advise to ensure i pay on time. Im with Danbro based in Blackpool. Let's hope HMRC are not too hard on me, but i don't think it will be a good idea to mention where i spent the loan

[kal]

Yes, you are correct, i've been paying myself salary every month and the directors loan i started borrowing around December and continued every month until Feb expecting to pay the final loan by March/April (I took multiple director loans totalling just under 5k). Everytime i used a directors loan i paid it off when my salary was due, however the last directors loan was taken to pay unexpected bills and also investment in a stock, which you were also correct to point out. Unfortunately, the stock didn't return as expected, hence the delay in payment.

I understand it was foolish to borrow money to use for such activities but i've learnt my lesson now and vow never to risk going down this road again. If all goes well, i should be able to pay off the taxmans money in 2-3 months time, but of course that's not guarunteed. In the meantime, im doing all i can to find another contract job to pay this off ASAP.

Just to let you know, my accountant knew everything about my situation with IR35 and the fact that i take out director loans as described above. Never once did they discourage but did advise to ensure i pay on time. Im with Danbro based in Blackpool. Let's hope HMRC are not too hard on me, but i don't think it will be a good idea to mention where i spent the loan

So you took out a directors loan to fund some share purchase which tanked and now you don't have the money to pay the tax and VAT man .

[VectraMan]

I would use overdraft/bank loan/credit card advance to pay back the director's loan. You owe the money anyway; the only advantage to borrowing from the company is no interest, and fines from HMRC could wipe that out.

[d000hg]

You sure? Surely he loaned himself money collected on behalf of the Tax man that didn't belong to the company?

One of the dangers of not researching your full liabilities as Director of a company - VAT and PAYE are not your money to" borrow" as you feel like it - it belongs to HMRC and they will not take at all kindly to being deprived of it. As NLUK says have a rethink about your accountant

Is that the legal situation Lisa? Surely when a company charges VAT it is their money, but HMRC will then legally require it is paid back to them i.e. it is money you owe HMRC not money you are holding for HMRC... the same as CT? If VAT money belongs to HMRC from the start, why am I allowed to earn interest on it?

[Taita]

Is that the legal situation Lisa? Surely when a company charges VAT it is their money, but HMRC will then legally require it is paid back to them i.e. it is money you owe HMRC not money you are holding for HMRC... the same as CT? If VAT money belongs to HMRC from the start, why am I allowed to earn interest on it?

Surely, there is no bar to earning interest on any money you temporarily control. The problem arises when that money is not available when it is due to another party!

[d000hg]

Surely, there is no bar to earning interest on any money you temporarily control. The problem arises when that money is not available when it is due to another party!

Yes but there is a massive difference between it being my money I am legally obligated to pay to HMRC, and HMRC's money which I control. Every month I set aside money for CT but that is my money, it does not even become due to HMRC until I do my return a year or so later. Is VAT the same or not?

[dty]

The question is, when does the VAT liability arise? Is it when the sale is made (or paid for if cash accounting), or when the VAT return is done?

[malvolio]

Yes but there is a massive difference between it being my money I am legally obligated to pay to HMRC, and HMRC's money which I control. Every month I set aside money for CT but that is my money, it does not even become due to HMRC until I do my return a year or so later. Is VAT the same or not?

Strictly speaking yes, but you'd better be bloody sure it is there when it's due to be paid. The likely outcome for the OP is him being barred as a director.

What I struggle with is taking director's loans when you're inside IR35 where you have to pay the taxes on 95% of your income anyway. The OP's accountant has to share much of the blame here: I'd report him to his accreditation body sharpish.