Company cease trading

[NotAllThere]

If it helps, I think you were being a bit careless and gung-ho, rather than actively seeking to defraud.

[smalldog]

It's a fantastic idea and I'm sure no one has EVER thought of this before but unfortunately this is tax evasion and will land you in a tulip load of trouble.
I can see that you are having a bit of a over this one so here's a detailed scenario showing why HMRC don't tax evasion in the way you propose:

Let's say someone forms a company, the company does some trading, pays a salary of £7488 for the year (no PAYE/NI due), pays it's expenses (mostly to the director of course) and makes a profit of £30,000. £6,000 of that is put aside for Corporation tax and the rest is paid out to the director as a dividend. Now the director decides to take that £6,000 out of the company as a director's loan and attempts to quietly close the company down, writing off the director's loan and not ever filing accounts or paying the directors loan back. Effectively, the director/sole share holder has been paid without a penny of tax being deducted.

This is pretty much the scenario you propose. Can you see why this can't work? If it did then everyone would do it and rob HMRC blind. What happens is that HMRC will object to the company being struck as they cannot quantify it's tax liabilities and they won't allow the company to be struck until the paper work is filed and the tax is paid.



So if you don't file any accounts then the profit the company made magically ceases to exist and you can take the money tax free? It be great if it worked that way, but we aren't in Teletubby land I'm afraid. Corporation tax is due on profits. Failure to account for those profits doesn't make profits or corporation tax liability go away.



No, but you have made a mistake by not doing your accounts properly resulting in you taking illegal dividends when there was no profit in the company to pay them out of. Now you have to transfer the illegal dividends to your director's loan account and figure out how much you have to pay back to the company so it can settle it's liabilities then close it down properly.

Don't get all tulipty with us when we give you grumpy answers to your questions because what you are trying to do is rape the system and that gives us honest folks a hard time.

thanks for the explanation, Im getting SH*tty as a lot of people including you, are jumping to conclusions thats I was looking too rape the system as you put it, and going to take the proverbial, I was seeking clarity which I now have and I can therefore take the appropriate steps.

[Wanderer]

Hi VM, no company year end is October 2011 so will have accounts to prep for next July. Basically I will have drawn cash that is not profit so becomes a loan which personally I could be held accountable to pay by HMRC, but thats only if I actually publish accounts. Its an interesting one really.

It's a fantastic idea and I'm sure no one has EVER thought of this before but unfortunately this is tax evasion and will land you in a tulip load of trouble.
I can see that you are having a bit of a over this one so here's a detailed scenario showing why HMRC don't tax evasion in the way you propose:

Let's say someone forms a company, the company does some trading, pays a salary of £7488 for the year (no PAYE/NI due), pays it's expenses (mostly to the director of course) and makes a profit of £30,000. £6,000 of that is put aside for Corporation tax and the rest is paid out to the director as a dividend. Now the director decides to take that £6,000 out of the company as a director's loan and attempts to quietly close the company down, writing off the director's loan and not ever filing accounts or paying the directors loan back. Effectively, the director/sole share holder has been paid without a penny of tax being deducted.

This is pretty much the scenario you propose. Can you see why this can't work? If it did then everyone would do it and rob HMRC blind. What happens is that HMRC will object to the company being struck as they cannot quantify it's tax liabilities and they won't allow the company to be struck until the paper work is filed and the tax is paid.

I didnt really understand if CT would be owing as that can only be owing based on accounts being submitted showing a profit, so if Im not how does that work.

So if you don't file any accounts then the profit the company made magically ceases to exist and you can take the money tax free? It be great if it worked that way, but we aren't in Teletubby land I'm afraid. Corporation tax is due on profits. Failure to account for those profits doesn't make profits or corporation tax liability go away.

I cant be the only person in the world who was merrily running the co. drew dividends only to find the income suddenly cut short.

No, but you have made a mistake by not doing your accounts properly resulting in you taking illegal dividends when there was no profit in the company to pay them out of. Now you have to transfer the illegal dividends to your director's loan account and figure out how much you have to pay back to the company so it can settle it's liabilities then close it down properly.

Don't get all tulipty with us when we give you grumpy answers to your questions because what you are trying to do is rape the system and that gives us honest folks a hard time.

[Maslins]

Fair enough really and without being flamed I just wanted to get some views as I didnt really understand if CT would be owing as that can only be owing based on accounts being submitted showing a profit, so if Im not how does that work.

Without a corporation tax return being filed, HMRC won't know what they're owed.

However, deliberately not filing a tax return when you've had income which should have been declared on it is tax evasion, no different to the dodgy suppliers taking cash in hand.

Also worth bearing in mind that (if we naively assume HMRC's right hand knows what its left hand is doing) they'll be able to work out you've had a profit since the last filed accounts/tax returns due to VAT return figures.

I have seen cases where companies which owe money to HMRC have been struck off the register. Probably happens due to HMRC not having the staffing to stick their noses in in time. I wouldn't recommend on this though, as firstly, even if you get away with it, it's tax fraud, and secondly HMRC can get a court order to revive the company further down the line...so even if you sneak through the strike off, it doesn't mean you're home and dry.

[NotAllThere]

The usual method is to treat the overpayment as a director's loan, rather than dividends, then pay it back to the company.

[smalldog]

So your company year is end of July 2012? You need to do accounts and a CT return for the last year you've traded in, but if that's up to July 2012 and you've done the accounts/CT return for 11/12 and haven't traded since, you should now be able to get out of it relatively painlessly. Deregister from VAT and PAYE. Get the form from companies house (is that DS01 - can't remember). Send a copy to HMRC, and give a copy to your bank when you close the account.

Hi VM, no company year end is October 2011 so will have accounts to prep for next July. Basically I will have drawn cash that is not profit so becomes a loan which personally I could be held accountable to pay by HMRC, but thats only if I actually publish accounts. Its an interesting one really.

Northernlad, I have the cash personally to cover any potential liability subject to the outcome of BN66, and yes the loan from my wife will be paid back from my funds. Its a question of whether I will need too pay any CT really. My accountants view is that Ive overdrawn the company, he thinks it would probably be too small to be put through for HMRC to issue a winding up order etc, but if HMRC did want to do an audit they would say I should pay back the overdrawn amount as it wasnt mine.

Fair enough really and without being flamed I just wanted to get some views as I didnt really understand if CT would be owing as that can only be owing based on accounts being submitted showing a profit, so if Im not how does that work.

Which I never actually got an answer too, I got the responsibility, and how to run a Ltd company gong bashed. Im not trying to get out of paying money, Im trying to understand the system and consequences.

Thanks for the telling off teacher, but can anyone who has been in the same position share their experiences? I cant be the only person in the world who was merrily running the co. drew dividends only to find the income suddenly cut short.

[VectraMan]

So your company year is end of July 2012? You need to do accounts and a CT return for the last year you've traded in, but if that's up to July 2012 and you've done the accounts/CT return for 11/12 and haven't traded since, you should now be able to get out of it relatively painlessly. Deregister from VAT and PAYE. Get the form from companies house (is that DS01 - can't remember). Send a copy to HMRC, and give a copy to your bank when you close the account.

[northernladuk]

No. The responsible thing is to not take non-distributable money out of the company. What you're doing in trying to fix it before it gets even more serious, is dealing with that irresponsibility in a responsible fashion.

Basic rule of running a company - don't take money out that isn't profit.

+1 to this but I believe there is a long history here and not every choice was the op's... but bearing NAT's comment are you putting your wifes company in the same position by leaving it exposed or is this money it can afford. I wouldn't say loaning a chunk of money into a situation where it might not get it back in good time would be responsible? Having one company in a potentially illegal situation is bad enough, 2 would just be suicidal?

I don't know the in's and out's but just something that struck me while reading the OP post.

[NotAllThere]

No. The responsible thing is to not take non-distributable money out of the company. What you're doing in trying to fix it before it gets even more serious, is dealing with that irresponsibility in a responsible fashion.

Basic rule of running a company - don't take money out that isn't profit.

[smalldog]

Hi BB, yep as you well know this seems the most appropriate route for me at present, bit of protection against potential bankruptcy should the hammer fall with BN66 as you obviously cant be a director, and ive been cornered slightly with a small person on the way.

Gotta love the attitude of some on the board, hindsight is wonderful thing isnt it. Ive got 12 months to formulate a strategy I guess and to come up with the CT etc so time on my side. I actually think Im being responsible even thinking about it at this stage!

[BolshieBastard]

Smalldog, sorry to hear this. Obviously other posters dont know your situation with the BN66 worry.

TBH I'd advise you have a word with your accountant rather than just let the co be struck off. Im not sure if there may be future ramifications for you if \ when you decide to return to contracting with a new ltd if you go down this route.

It may be better to keep the co open as long as you can then use some of your own funds to meet the company's obligations. I pressume seeing as you have emptied the co, these would be shown as directors loan to you so, you may be able to re introduced this money 'as and wehn.'

Good luck and chin up.

[Andrew at Boox]

Get your accountant to give you an idea of your final CT liability and make sure you've claimed all business related expenses. Knowing your CT exposure will be a good start to addressing it.

[NickWallace87]

Have to agree with SarahL2012. Why take the funds when they are not due to you?

Posts like this infuriate me! Surely your accountant should have been advising you of what VAT and CT to keep aside? The VAT is charged on top of your rate and should just be put aside and paid over, it isn't your money to use so why have you had to borrow this and create another liability for your company. What is going to happen to the money that your company owes to your wife's company?

You will still be required to file your return, submit your account and pay any CT owed. This is how it works with a Limitd company as I am sure you are aware!

[SarahL2012]

Hi, I've been forced into a perm role so am going to cease trading. This has been a rapid change of circumstances and I've recently paid my last lot of ct as just filed. As its a rapid change there is no provision for future accountants fees or ct for any final accounts.

I've done some research and most posts say you must submit a final set of accounts etc, but I don't have the company funds to pay accountants and there are no reserves to pay any ct that could be owing as its something I financially plan and put aside a few months from when it's due. I've had to borrow from my wife's company just to pay the final vat return as this fell same time as ct. I've borrowed to ensure all vat owing is paid and that the bank is not owed so bank accounts not in the red, so that's all clear and closed off.

All that would be owed would be ct for this years accounts which will now not be produced or filed and would be due in July 2013. In which case do I actually owe anything?

I assume I just don't file an annual return and let the firm be struck off? obviously if I've had to borrow to pay my ct and vat for this year there is not going to be funds for final accounts or to appoint an ip to be wound up.

I've got a call with my accountant tomorrow but assume he will just say I have to submit final accounts which I'm not prepared to fund personally.

You should only have taken dividends out of the company if you had sufficient DISTRIBUTABLE reserves to do so - ie after providing for all tax liabilities, accounting costs etc. So you need to leave enough reserves in the company to ensure that you can pay your remaining tax liabilities for the period to July 2012 plus fees to close the company down.

[smalldog]

Hi, I've been forced into a perm role so am going to cease trading. This has been a rapid change of circumstances and I've recently paid my last lot of ct as just filed. As its a rapid change there is no provision for future accountants fees or ct for any final accounts.

I've done some research and most posts say you must submit a final set of accounts etc, but I don't have the company funds to pay accountants and there are no reserves to pay any ct that could be owing as its something I financially plan and put aside a few months from when it's due. I've had to borrow from my wife's company just to pay the final vat return as this fell same time as ct. I've borrowed to ensure all vat owing is paid and that the bank is not owed so bank accounts not in the red, so that's all clear and closed off.

All that would be owed would be ct for this years accounts which will now not be produced or filed and would be due in July 2013. In which case do I actually owe anything?

I assume I just don't file an annual return and let the firm be struck off? obviously if I've had to borrow to pay my ct and vat for this year there is not going to be funds for final accounts or to appoint an ip to be wound up.

I've got a call with my accountant tomorrow but assume he will just say I have to submit final accounts which I'm not prepared to fund personally.