Reply to: Trying to close company but outstanding Directors Loan Account. What are the options?

[ChimpMaster]

There's always a way, but the OP is unlikely to return and so we'll never really know the true story and so won't be able to help him any further.

[eek]

Just to clarify something, is the director loan money that you owe to the company or money that the company owes to you? I think everyone else has assumed the former, in which case a personal loan is the obvious answer. If the latter, I assume that you (as the debtor) could write it off, and then the company would no longer be liable for that debt.

More generally, I think it will help to be clear about what you owe personally (e.g. a Director's Loan) and what the company owes (e.g. Corporation Tax).

The clue is in the S455 - the director has borrowed money from the company...

[hobnob]

I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

Just to clarify something, is the director loan money that you owe to the company or money that the company owes to you? I think everyone else has assumed the former, in which case a personal loan is the obvious answer. If the latter, I assume that you (as the debtor) could write it off, and then the company would no longer be liable for that debt.

More generally, I think it will help to be clear about what you owe personally (e.g. a Director's Loan) and what the company owes (e.g. Corporation Tax).

[Lance]

You ignore the fact that the debtor is known by the director to be unable to repay the debt owed...

Now look at the accounts again with the knowledge that that £11,411.01 needs to be written off as a bad debt.

Well.... if you put it like that....
Job’s buggered then I reckon.
Penury and servitude for the foreseeable.

It’s almost as if people don’t take their responsibilities seriously when starting a company. And these people are allowed to breed....

[eek]

Taking the numbers at face value.
Debtors = £11,411.01
+ cash on hand of £15,500 = £26,911.01

Which is marginally greater than the creditor account of £26,378.84

Is S455 owed by the company making it insolvent?

You ignore the fact that the debtor is known by the director to be unable to repay the debt owed...

Now look at the accounts again with the knowledge that that £11,411.01 needs to be written off as a bad debt.

[Lance]

The company is technically insolvent otherwise I would have suggested just a bounce back loan already.

I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

Now I stopped trading in March, so there has been no income into the company, or nor have I drawn any money from the company. There is around £15,500 sitting in the company account at the moment.

Taking the numbers at face value.
Debtors = £11,411.01
+ cash on hand of £15,500 = £26,911.01

Which is marginally greater than the creditor account of £26,378.84

Is S455 owed by the company making it insolvent?

[eek]

I reckon a bounce back loan could be used to pay some, or all, of the CT but won't cover the DLA.
Whether a large enough bounce back loan would be available depends.

As for the DLA. That's a touch one. Assuming available credit it would be cheaper to take a loan to pay that off than keep the company running. But if there's no available credit it may not be possible.

Professional advice is needed for this one I reckon.

The company is technically insolvent otherwise I would have suggested just a bounce back loan already.

[Lance]

I reckon a bounce back loan could be used to pay some, or all, of the CT but won't cover the DLA.
Whether a large enough bounce back loan would be available depends.

As for the DLA. That's a touch one. Assuming available credit it would be cheaper to take a loan to pay that off than keep the company running. But if there's no available credit it may not be possible.

Professional advice is needed for this one I reckon.

[jamesbrown]

Distribution in specie from what? Unless the OP's company has some other high value assets not mentioned, I think the company is insolvent (or perhaps technically solvent but only by virtue of the director's loan account). You need retained profit to do as you're suggesting.

OP afraid there is no easy solution from here. You've taken out more from your company than you were entitled to do so. It now can't afford to pay its debts because of this.

As he noted, there is no way around settling the outstanding CT, none whatsoever.

[Maslins]

The DL account can be cleared on liquidation through an initial distribution in specie.

Distribution in specie from what? Unless the OP's company has some other high value assets not mentioned, I think the company is insolvent (or perhaps technically solvent but only by virtue of the director's loan account). You need retained profit to do as you're suggesting.

OP afraid there is no easy solution from here. You've taken out more from your company than you were entitled to do so. It now can't afford to pay its debts because of this.

(EDIT - I'm evidently slow at typing!)

[eek]

Plenty he can still do if he speaks with a knowledgeable insolvency firm and an accountant who is more of a tax specialist than a generalist.

The DL account can be cleared on liquidation through an initial distribution in specie.

The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.

The CT of course will need to be paid.

I suspect we won't ever hear from the OP ever again but he might gain some value from reading my post @ https://www.contractoruk.com/forums/...quidation.html and the links contained within.

The line in bold is the problem - until he has paid the CT he can't sort out the other bits and there isn't enough money in the company to pay the Corporation Tax.

The OP can speak to any advisor he wants but until he borrows £12,000 to repay the loan and ensure the corporation tax is paid nothing is going to change.

[jamesbrown]

The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.

Other than not having any money, that is the main headache for the OP, I think. We're talking, perhaps, not far off two years.

[ChimpMaster]

Plenty he can still do if he speaks with a knowledgeable insolvency firm and an accountant who is more of a tax specialist than a generalist.

The DL account can be cleared on liquidation through an initial distribution in specie.

The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.

The CT of course will need to be paid.

I suspect we won't ever hear from the OP ever again but he might gain some value from reading my post @ https://www.contractoruk.com/forums/...quidation.html and the links contained within.

[eek]

You need to get a loan for £18,000 - plus a bit more to cover accountancy fees for another year. Then you can pay the loan back, loan the company £6772.25 and pay the S455 and the tax bill. Nine months after your next year end (I think that's right), you get the S455 charge back, and the company can reimburse you. Then you can close it.

I suspect the S455 has been paid to HMRC (it's far higher than the outstanding directors loan would make it).

So the OP needs to borrow £12,000 - pay the Corporation tax, reclaim the S455 and extract that money when it arrives from HMRC to repay some of the loan.

[NotAllThere]

Hi,

I stopped contracting back in March this year and have been working as a permanent employee ever since. I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

Now I stopped trading in March, so there has been no income into the company, or nor have I drawn any money from the company. There is around £15,500 sitting in the company account at the moment.

I am being told that I cannot close the company until I have paid back the directors loan and tax on it, but I do not have that money available. Since I have taken a pretty dramatic pay cut to go permie, I don't really have much disposable income to pay this back also.

What are my realistic options or any advise from anyone who has been in a similar boat??

You need to get a loan for £18,000 - plus a bit more to cover accountancy fees for another year. Then you can pay the loan back, loan the company £6772.25 and pay the S455 and the tax bill. Nine months after your next year end (I think that's right), you get the S455 charge back, and the company can reimburse you. Then you can close it.