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Expenses of Company in receivership

Our client has paid expenses of a company that he owns (which is now in receivership) through another company which he owns. He is claiming that it's a valid business expense as thecompanies he has paid wouldn't trade with the new company unless the bills were paid. Does anyone know if these amounts can be tax deductible in the new company? The expenses haven't been claimed against tax in the old company as no accounts or corp tax return have been completed for the period.

Many thanks

Tracy

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25th Feb 2013 10:13

Nope

Those expenses were not incurred for the purpose of the trade.

It would be quite convenient if we could put expenses from a loss making company through the profitable company and get tax relief against those profits.

There would be hundreds (thousands?) of people starting new companies for that very purpose.

EDIT: has the insolvent company ever paid tax? If so, maybe terminal loss relief is a possibility.

Thanks (1)
By Glennzy
25th Feb 2013 16:19

This can be common practice

but doesnt mean its right.

Many people in building trade phoenix companies and offer to pay old suppliers in order to set up new accounts.

They are clearly not allowed as an expense in Newco as nothing to do with it. It also accounts to preferential treatment in so far as the insolvency of the old company goes.

As these preferred suppliers will also have made full claims to the receiver on the off chance a final dividend is paid.

" the expenses havn't been claimed for tax in old company" is not strictly true as I am sure HMRC is by far the major creditor and they have received signifcant "tax relief" by phoenixing the company.

Can the Newco afford to pay these debts without struggling itself. Is he paying everyone off or just the people he needs? Did you act for the old company?

I would send them a management letter stating the problems he potentially faces by doing this and any payments made this way should go to his DLA which he will need to clear by introducing his own funds.

 

Thanks (0)