Reply to: Take a 45% cut post tax for a perm job to just about pay off the bills or wait?

[jayn200]

I wouldn’t call it fraud, more like ignorance. Some fraction of directors will get caught out by their own ignorance, whether by preference payments or misfeasance or ultra vires dividends or something else. It remains to be seen how aggressive the gov’t will be too. Just make sure you understand your responsibilities when taking a BBL and you’ll be fine if the business subsequently proves non-viable.

That's fair and never know who reads these threads so probably good you pointed that out.

[jamesbrown]

Yes you're probably right (I'm not an accountant and not giving professional advice) but that still all falls under fraud... In this case he has 4500 in distributable earnings in his company still and probably most contractors on here will only ever have tax debt if they have any at all.

I wouldn’t call it fraud, more like ignorance. Some fraction of directors will get caught out by their own ignorance, whether by preference payments or misfeasance or ultra vires dividends or something else. It remains to be seen how aggressive the gov’t will be too. Just make sure you understand your responsibilities when taking a BBL and you’ll be fine if the business subsequently proves non-viable.

[jayn200]

This is a gross simplification. Complying with your statutory and fiduciary duties as a director cannot be simplified as “not committing fraud”. For example, how do you avoid the rules surrounding preference payments if you use the BBL to pay off a pre-existing company debt? There’s a lot of clueless directors out there taking BBLs and thinking they’ll be able to walk away without a fight. Make sure you understand your statutory and fiduciary duties before you take one.

Yes you're probably right (I'm not an accountant and not giving professional advice) but that still all falls under fraud... In this case he has 4500 in distributable earnings in his company still and probably most contractors on here will only ever have tax debt if they have any at all.

[jamesbrown]

An LTD is its own entity. There is no personal guarantee on a bounce back loan. It's an unsecured loan. As long as you don't commit fraud you are okay.

Ltds have bad debts all the time and go insolvent, it's just part of business. As long as the directors didnt commit fraud and don't have outstanding directors loans then it's not an issue.

This is a gross simplification. Complying with your statutory and fiduciary duties as a director cannot be simplified as “not committing fraud”. For example, how do you avoid the rules surrounding preference payments if you use the BBL to pay off a pre-existing company debt? There’s a lot of clueless directors out there taking BBLs and thinking they’ll be able to walk away without a fight. Make sure you understand your statutory and fiduciary duties before you take one.

[jayn200]

Thanks, not sure I agree with this bit though:


"...should you not be able to pay back the loan and decide to fold the company, you wouldn't owe anything to anyone."

What makes him think that a BBL wouldn't be owed if one chose to fold the company? I can't see anyone being let off the hook that easily with potentially up to £50k of government cash at any one time simply being written off! However reading that it can be paid back as early as you want is good to know.

An LTD is its own entity. There is no personal guarantee on a bounce back loan. It's an unsecured loan. As long as you don't commit fraud you are okay.

Ltds have bad debts all the time and go insolvent, it's just part of business. As long as the directors didnt commit fraud and don't have outstanding directors loans then it's not an issue.

[ziggystardust]

Thanks, not sure I agree with this bit though:


"...should you not be able to pay back the loan and decide to fold the company, you wouldn't owe anything to anyone."

What makes him think that a BBL wouldn't be owed if one chose to fold the company? I can't see anyone being let off the hook that easily with potentially up to £50k of government cash at any one time simply being written off! However reading that it can be paid back as early as you want is good to know.

[eek]

Just checked out the criteria for applying on the British Business Bank website and the following doesn't sound very hopeful for using the loan as salary:

"The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes..."

I don't believe salary comes under "working capital"?

I would follow the advice on here

I just took a BBL and it's great for the war chest.

For those trying to abuse the system, here's the list of do and don't with the money from the BBL:
Do:
- Pay yourself via PAYE salary.
- Pay your pension because its company expense
- Buy new equipment or anything related.

Don't:
- Pay dividend. You can only pay dividend from company profit. Loan is not profit so you shouldn't do that.
- Pay corporation tax / vat. Again, it should have been money that stayed in your bank account to pay for that.
- Give yourself a director loan. Not only it may be considered as income by HMRC for extra tax owed, but you may also be chased for debt by administrators should your company fold.

As long as you do the "Do's", should you not be able to pay back the loan and decide to fold the company, you wouldn't owe anything to anyone.

PAYE is fine, equipment is fine, pension might be pushing it a bit...

[ziggystardust]

Just checked out the criteria for applying on the British Business Bank website and the following doesn't sound very hopeful for using the loan as salary:

"The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes..."

I don't believe salary comes under "working capital"?

[jayn200]

Sorry not clear - are you suggesting I take a salary as well as temp, as would that not mean I would then get taxed twice for having a second job? Or would my tax remain the same if I draw down the minimum salary allowance? Also, are there any exclusions to being accepted for the loan e.g is this affected by how long it has been since the company traded?

Yeah the only way to legally extract the money is to take a salary so you have to take the tax hit. If you end up finding a contract later on you can pay back the bounce back loan but this is just about survival right now.

There is a qualifying criteria you have to meet. You should look it up, my answer wasn't meant to be complete but just a starting point for you to do more research if you hadn't considered using a bounce back loan.

[ziggystardust]

Keep company open, get a bounce back loan, draw down as salary until you are able to find another contract (or run out of money)

Sorry not clear - are you suggesting I take a salary as well as temp, as would that not mean I would then get taxed twice for having a second job? Or would my tax remain the same if I draw down the minimum salary allowance? Also, are there any exclusions to being accepted for the loan e.g is this affected by how long it has been since the company traded?

[GhostofTarbera]

Keep company open, get a bounce back loan, draw down as salary until you are able to find another contract (or run out of money)

Exactly this


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[jayn200]

Update: Surprisingly or not I did not get either job. The line of questioning in one interview implied that I was over qualified for the job and in the other that my sector experience wasn't the right fit.

I have now been offered a 3 month temp job directly through an agency paying £12 an hour on their payroll, which I'm taking. I would still need to supplement that with additional cash as it wouldn't be enough to cover my monthly outgoings. If I close the company, after paying off the accountant I will come away with £4500. The other option is I keep the company open and take it as dividends to supplement my income over the next 3 months in the hope of finding another contract or permanent job in that time. What are the tax implications doing this?

Keep company open, get a bounce back loan, draw down as salary until you are able to find another contract (or run out of money)

[ziggystardust]

You would need to declare the £12 ph job on your SATR just like you would have done for any PAYE from your LtdCo. If you haven't closed your LtdCo PAYE scheme and issued yourself a P45 your new job will be taxed at emergency rate which may result in you overpaying. Although at such a low rate the impact is likely to be minimal.

I do hope things pick up for you. Keep at it!

I'm keeping at it alright I issued myself a P45 a couple of weeks ago but does that incorporate closing the PAYE scheme or is leaving it open detrimental in some way? My accountant also mentioned that I would also get taxed an additional 7.5% on top of tax on any dividends I continue to take out if I keep the company open whilst temping. Is that right?

[ladymuck]

You would need to declare the £12 ph job on your SATR just like you would have done for any PAYE from your LtdCo. If you haven't closed your LtdCo PAYE scheme and issued yourself a P45 your new job will be taxed at emergency rate which may result in you overpaying. Although at such a low rate the impact is likely to be minimal.

I do hope things pick up for you. Keep at it!

[_V_]

This thread is a real eye opener to me. Contractors having to take £12/hr temp jobs or live on the streets. Scary times.