Is there any way back for this client?
Background - I've very recently taken on a new client who is in a mess. I don't really want to get into arguments over whether I should have taken them on - maybe I'll start a separate thread for that. The client is a care business - i.e.: they provide carers to go to old/ill/disabled peoples' homes to administer care, medication, etc, etc. In short, they are a long way behind with the PAYE. Again, I don't want this thread to turn into a series of comments that the PAYE is not their money and there's no excuse for paying it over, etc. The situation is what it is. They got behind in 2010/11 and had a time to pay arrangement. They kept to this but fell behind with 2011/12. They are now a long way behind - far more than is affordable in the short term.
This client has been taking on additional business recently and has had a nod and a wink from the local authority that when the tri-annual contracts are up for renewal in December, because they now have certain accreditations they didn't have previously, they will be awarded substantial amounts of work.
We've done some forecasts this week and proposed a time to pay arrangement with HMRC and they have rejected it although I am waiting on a call from a director there next week. My hopes that they will show leniency are low.
So, the question is, what is the best way out of this mess? HMRC told me today that if we can't come up with a 6 month time to pay arrangement they will move to liquidate. There are no assets to speak of other than the DLA (I know - the PAYE should have been paid rather than funds drawn out to pay household bills but it's happened).
Firstly, if HMRC move to liquidate I assume they'll want the DLA repaid. If the sole director has no cash to pay this can they move to sell assets (e.g.: the family home) to recover the amount owed by the director?
Secondly, how quickly would they move? Could they simply order the company to cease trading immediately? Given the nature of the business an immediate cessation could, quite literally, be a matter of life and death.
We are meeting an IP on Monday morning. Is pheonixing possible (notwithstanding whether the local authority would transfer work to the newco)? My main worry with pheonixing is that HMRC might demand a security bond against future PAYE. The director couldn't come up with this so if required pheonixing is a non starter. However I assume we wouldn't find out that a bond was required until AFTER the newco was set up - how do we get around that?
If we assume that paying the debt in 6 months or a pheonix are not possible, are HMRC likely to give us a short time to try to find investment and/or a buyer for the business? They make a healthy gross margin. The issues have arisen from naivety and poor financial management, not because the underlying business cannot work. I have no idea whether we could find investment or a buyer or not, but would HMRC grant a short timeframe to look?
Finally is there a possibility, due to the nature of the business, that HMRC might show a little more leniancy with regard to the time to pay? I have no doubt that with better financial controls (i.e.: actually getting monthly accounts for a start) and understanding of the finances, coupled with the new contract and existing organic growth, that this business can succeed and pay down the HMRC debt and, ultimately, clear the DLA with dividends and/or bonus.
So, after all that, is there any hope?
Thanks in advance