Reply to: Tax liability after LTD wound up

[DeludedAussie]

Errrr, the company only pays CT on your profits so if the company spent all it's money on salary then there is no profit so therefore no CT to pay, no?

And if the company failed to pay the PAYE/NI due on the salary, it's quite possible a director could get a personal bill for that.

The VAT being used to pay salary is what I am talking about as well ...

[Wanderer]

Insolvency is defined as not being able to pay your debts as and when they fall due - If you start a company which has 100K in the first six months and that is withdrawn as salary (remember you need to pay PAYE on that) then the business stops because your contract is canned your company is by definiotn insolvent and doe snot pay the corp tax

Errrr, the company only pays CT on your profits so if the company spent all it's money on salary then there is no profit so therefore no CT to pay, no?

And if the company failed to pay the PAYE/NI due on the salary, it's quite possible a director could get a personal bill for that.

[borderreiver]

Unless you've behaved fraudulently or negligently, have an overdrawn DLA or have made illegal dividends, then AFAIK the debt dies with the company, whatever HMRC says.

[DeludedAussie]

I had a small Plan B Co. where we had to pay CT based on revenue that never actually turned up, but fortunately as we hadn't paid any dividends it was covered. Then in the next CT return it was listed as a bad debt and we were able to get a refund from HMRC, meaning we were then able to close the company and pay a small amount out to the directors with everything being square.

Insolvency is defined as not being able to pay your debts as and when they fall due - If you start a company which has 100K in the first six months and that is withdrawn as salary (remember you need to pay PAYE on that) then the business stops because your contract is canned your company is by definiotn insolvent and doe snot pay the corp tax

You cannot do this with dividends because that is a distribution from retained profits - From salary you 100% can!

[VectraMan]

If those expected payments were included in profit and can be written off, that should make the CT lower by 20% of them anyway.

I had a small Plan B Co. where we had to pay CT based on revenue that never actually turned up, but fortunately as we hadn't paid any dividends it was covered. Then in the next CT return it was listed as a bad debt and we were able to get a refund from HMRC, meaning we were then able to close the company and pay a small amount out to the directors with everything being square.

[DeludedAussie]

Tosh.

If the company becomes insolvent because a director breached the code of directors duties, then the liquidator can consider a claim against the director, to the benefit of the creditors.

Linky.

It is not tosh - I have spent many weeks dealing with liquidations - Salary payments are preferential over and above HMRC as long as they are reasonable

As a contractor you could easily claim a salary of 100K to be reasonable.

How else do you think companies go insolvent? They have paid salary and bought tools for the trade and then lost a contract meaning they are unable to pay their debts!!!

[northernladuk]

As you are an accountant I am shocked at this advice

They will not bother restoring the company to the register once it is struck off as the majoirty of companies are struck off for being dormant

As for the idea of fraud and penalties if you have spent tax money this is nonsence - People spend tax money in the HOPE that the trading next month covers this shortfall. There are hundreds of companies who go insolvent each day (I have spent many days in companies court) all because they spent the tax money in the hope that trading would pick up.

As an IT contractor your salary is prferential to HMRC tax - If the company earnt 50K and you decided to have a salary of 50K HMRC could do nothing about this - The company is insolvent !

Having a quick browse of Accounting web shows that there are number of situations where HMRC have given the option to re-instate the company or the directors accept liability personally. There are also a number of posts where the accountants suggest the director settle the debt personally to avoid the complications of re-instatement. To counter that there are a couple of posts about this being threatened but ignoring it made it go away.

You are not totally correct just to say they won't bother and the issue will go away. You could try but doesn't appear to be the most successful of tactics and they will still try to come after you.

Claire's info seems to fit most of the posts made on accounting web on similar situations. The devil is in the details though. You can't expect them to follow up with a fraud investigation over a 6k CT bill for example.

[DirtyDog]

As an IT contractor your salary is prferential to HMRC tax - If the company earnt 50K and you decided to have a salary of 50K HMRC could do nothing about this - The company is insolvent !

Tosh.

If the company becomes insolvent because a director breached the code of directors duties, then the liquidator can consider a claim against the director, to the benefit of the creditors.

Linky.

[DeludedAussie]

There are ways that can happen. If a company trades but makes unexpected losses then HMRC may agree to write off the debt, or if the company is struck off at Companies House before HMRC notice. In the latter case there's a chance they could notice later and apply for the company to be restored, then pursue the director for the funds if he was negligent or fraudulent.

It's highly unlikely that you could get away with it if you planned it though, as in the vast majority of cases HMRC will object to company being struck off if it hasn't filed accounts with them or owes them tax. If you've spent the tax money then they can request it from you, and you'll start accruing penalties & interest etc. Pretty sure that would count as fraud too.

As you are an accountant I am shocked at this advice

They will not bother restoring the company to the register once it is struck off as the majoirty of companies are struck off for being dormant

As for the idea of fraud and penalties if you have spent tax money this is nonsence - People spend tax money in the HOPE that the trading next month covers this shortfall. There are hundreds of companies who go insolvent each day (I have spent many days in companies court) all because they spent the tax money in the hope that trading would pick up.

As an IT contractor your salary is prferential to HMRC tax - If the company earnt 50K and you decided to have a salary of 50K HMRC could do nothing about this - The company is insolvent !

[expat]

For a conman, there are easier ways to make a quick buck then run away. Such as starting a dodgy agency with the intention of filling directors pockets first then leave the company to free-wheel into the wall leaving thousands of contractors with unpaid invoices.

... and then starting a new company, buying up the assets of the old company, including the client invoices for all the work done by the contractors who now won't be paid.

[xoggoth]

If those expected payments were included in profit and can be written off, that should make the CT lower by 20% of them anyway.

[Martin at NixonWilliams]

Hi Folks,

A friend of mine just wound up a company that was non profitable, there was an outstanding Corporation Tax liability of £8k but he hadn't retained that money in the company expecting revenues which ended up not coming. His account says that is no longer due as company no longer exists.

Does that sound right? If it is, what is to stop people starting up new companies to take a one off payment, then winding it up and not paying corporation tax?

Bob

It should not happen! As Clare says, HMRC should object to the strike off. This was commonly missed a few years ago but it seems HMRC are now much more on the ball, as they are objecting to all of the ones I have seen in recent times.

[masonryan]

For a conman, there are easier ways to make a quick buck then run away. Such as starting a dodgy agency with the intention of filling directors pockets first then leave the company to free-wheel into the wall leaving thousands of contractors with unpaid invoices.

[amcdonald]

Bob the Builder really

[Clare@InTouch]

There are ways that can happen. If a company trades but makes unexpected losses then HMRC may agree to write off the debt, or if the company is struck off at Companies House before HMRC notice. In the latter case there's a chance they could notice later and apply for the company to be restored, then pursue the director for the funds if he was negligent or fraudulent.

It's highly unlikely that you could get away with it if you planned it though, as in the vast majority of cases HMRC will object to company being struck off if it hasn't filed accounts with them or owes them tax. If you've spent the tax money then they can request it from you, and you'll start accruing penalties & interest etc. Pretty sure that would count as fraud too.