Dissolutioin of business with £10k due to HMRC. should I be involved?

Dissolutioin of business with £10k due to HMRC....

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I have a client I took over in April last year.

He has always done his own vat returns, I have never been registered as his vat agent.

His company hit problems last year around June.

He decided to wind it up and stopped trading in September.

he has asked me to reconcile his vat liability figure and I have arrived at a figure far larger that he had, which he has now accepted. 

He has paid off all creditors including PAYE but owes cica £10k vat.

There is no cash and no assets left in the company.

There is no question of impropriety on his part and he has taken about £4k from the company between April last year and cessation of trade.

I consulted an insolvency practitioner for him and was advised to write to HMRC VAT letting them know there are no assets left in the company and that we were going to dissolve the company. The insolvency practitioner says that i can do this.

I am about to write to HMRC for the client and commence dissolving the company.

Can anyone see any way in which I could possibly compromise myself by doing this?

Or is it fine ie will not blot my copy book with HMRC?

Seasoned advice would be much appreciated.

Replies (11)

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Stepurhan
By stepurhan
14th Mar 2014 15:54

No impropriety?

If there is no impropriety, could you shed some light on how the £10k difference on the VAT arose? If you are going to even consider being involved in this, you need to be very clear on this point. If there is impropriety, and you are seen as defending it, then that could mark your card as far as HMRC are concerned.

The fact is that some of the money he received from customers related to output VAT and HMRC will, not entirely unreasonably, seek payment of this. Subject to deductions for input VAT, the amounts received for output VAT were not his to use as he wished and they will want some accounting of where it has gone.

You might get lucky, but HMRC are likely to enquire if the director has taken any money for himself. If you are saying there are no assets, presumably the director's current account is clean. Have dividends been voted after the VAT liability would originally have arisen? Essentially can you demonstrate that the director has not taken HMRC's money himself?

 

 

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Replying to lawco:
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By Albie
14th Mar 2014 16:21

Well put. What should I do then?

Thank you Steven that is well put.

He has filed an incorrect vat return, possibly all of the vat returns he has files have been incorrect.

I have just done the final vat reconciliation to show the true liability.

So, what should I do then?

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Replying to kevinringer:
Stepurhan
By stepurhan
14th Mar 2014 16:29

Incorrect why?

Albie wrote:
He has filed an incorrect vat return, possibly all of the vat returns he has files have been incorrect.
Based on your figures, he has consistently been understating his VAT figures. You need to know why before deciding on what to do next. £10k is a lot for an innocent error and HMRC are likely to think the same. The approach for innocent error and deliberate understatement would be entirely different. You cannot proceed without being reasonably sure which it is.
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Replying to Red Leader:
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By Albie
14th Mar 2014 16:39

I know what he says, but I doubt it. But what do I do?

He has said that it is an innocent error.

But that is only his own explanation, I certainly have my doubts.

He has no workings for the vat returns he has done.

I have shown the true VAT liability.

So he has either innocently or deliberately understated his VAT.

What should I do though, do I just refuse to prepare final accounts?

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By neileg
14th Mar 2014 16:35

I agree

Where one creditor remains unpaid when others have been paid in full there is a strong suggestion of undue prefference.

The advice you have had from the insolvency practitioner is pragmatic. If HMRC don't pursue the VAT liability then the company can be struck off. However I would strongly recommend that your client writes the letter albeit with your guidance.

You don't start disolving the company, just apply for it to be struck off.

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Stepurhan
By stepurhan
14th Mar 2014 16:52

If doubting, disengage

You have no explanation for the £10k shortfall in VAT. The complete lack of VAT workings that would allow you to make a judgement on likely reasons is even more suspicious. You could try to fight on his behalf, but with nothing on which to hang an assertion of innocent error, HMRC are going to be hard to convince. Add to that the director is also likely to have voted dividends for himself that were illegal, since the VAT creditor is now presumably balancing with an overdrawn profit and loss account.

You have your doubts about the director already. I presume that, whilst accepting your balance, they are not suggesting that they will inject funds into the company to pay it. Accepting a balance you have no intention of paying anyway is not exactly taking responsibility for your actions. You only took the company on a few months before it "got into trouble" so you don't even have a long solid history with the client to fall back on.

I would advise you to disengage, citing the shortfall and lack of explanation thereof as reasons why you cannot continue to act. If you do continue, your only hope is to apply for striking off and hoping that HMRC don't object. On the facts given, any correspondence with HMRC on this is unlikely to end well for you or your client.

 

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By MBK
14th Mar 2014 17:12

Now let's be practical ...

Why are either you or the client spending any time on this at all? You, as far as I can see, aren't getting paid for the work and he (as far as I can see) has just got his sums wrong.

Both of you should just abandon the company and leave it to be struck off by Companies House in due course once HMRC have gone through the objection phase and then realised they are wasting their time. Nobody is interested at these levels.

It's life - companies lose money and cease trading. I don't see anything worse than that on the facts you've given.

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Replying to adam.arca:
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By Albie
14th Mar 2014 17:24

I see it as MBK sees it

I saw it as MBK sees it.

He has taken a salary at £650/ month. No dividends.

Yes he has made a complete hash of the vat in his own favour. Suspicious I agree.

I have had no involvement with the vat.

I intended just to write to hmrc letting them know what the true vat liability is and what the company balance sheet looks like.

I dont think that would be defending him, I would not pass a comment of how it got that way.I would just be stating what the position of the company is and asking HMRC if they have any objections to a striking off.

So would this put me in a bad light with HMRC?

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By Tosie
15th Mar 2014 08:37

Why be involved

The company cannot pay its vat so it follows that it cannot pay its accountant. It will not be paying its corporation tax so there is no point in preparing accounts.

HMRC have more money than you to investigate so let them get on with it if they want to.

I would never write to HMRC in these circumstances just move on.

When the debt collectors come on the scene the client (not you) advises them of situation.

 

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By the_Poacher
15th Mar 2014 13:41

Hope they investigate
Personally I hope they investigate and if he has paid himself in preference to creditors then I hope he is banned from being a director. Why should he get away with it when we have to pay our taxes in full.

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By GuestXXX
17th Mar 2015 16:15

.

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