Struck-off companies dodge £16bn a year

Government agencies taking a “blind eye” to non-compliance are losing the Exchequer up to £16bn a year in lost tax, according to tax justice campaigner Richard Murphy.

In a 68-page report published this weekend, Murphy found that in the year to March 2010 more than 500,000 firms were dissolved after failing to file accounts with Companies House.

“Rather than chase or prosecute them Companies House simply gets rid of the offending companies – so sweeping the problem of non-compliance with the law out of view,” the report concluded.

The agency’s reluctance to pursue non-compliant firms, combined with HMRC’s failure to collect tax from a majority of registered companies means that up to £16bn in tax goes uncollected every year, Murphy estimated.

Analysis of the Companies House register found that a majority of the 500,000+ companies dissolved during the year to March 2010 were removed from the Register of Companies because they did not file documents required by law. Roughly a third of all companies dissolved were less than two years old and had never filed accounts.

Evidence from the study suggested HMRC’s stance with non-compliant companies was equally lax. According to Murphy, HMRC does not appear to demand information from companies struck off if they are less than two years old. “In many cases we know almost nothing at all about those companies that disappeared forever,” the study stated. It also found:

  • Only 70% of companies are asked to file tax returns by HMRC.
  • Of those companies asked to file tax returns in the year to March 2010 only two thirds actually did so.
  • As a result of these two figures, only just over 45% of all companies filed tax returns for the year to March 2010.
  • In the year to March 2009 (the last year with data available) just 33.6% of all UK companies actually paid corporation tax.

Among 18 recommendations, the report suggested that UK-based banks should be required to advise HMRC and Companies House of bank accounts operated by UK-registered companies in order to pursue those that do not pay taxes nor file their accounts. It also suggested increased personal penalties for directors of non-compliant companies.

The report, '500,000 Missing people: £16 billion of lost tax' can be downloaded from the Tax Research website.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments

Pages

listerramjet's picture

to be entirely objective

listerramjet | | Permalink

your headline should include the word "might".  Surely as accountants we should be wary of allowing estimates to be mistakenly thought of as "actuals". 

Needs encouragement - human nature

mikewhit | | Permalink

"The result is that the penalty system must be a wholly ineffective deterrent to those determined not to pay tax"

That statement makes the unsupported conclusion that all of the persons concerned are "determined not to pay tax".

In fact it could be said that the penalty regime does nothing to encourage people to comply - once the £350, £700 (?) etc penalty has been filed, even getting your late accounts in does not make things any better.

Some people may then take the attitude, "what's the point, might as well save myself £700 and just let it go".

It could be suggested, for example, that the penalty will be due in 10 weeks, however, starting from end of week (£0) the penalty will increase on a weekly basis. Therefore the sooner you get it in, the better.

Some people who need a kick up the rear to get things in order may then inclined to get their act together and file. You could even say that the clock stops as soon as they are received.

What's the worst that could happen - the same as now.

thacca's picture

Experience

thacca | | Permalink

My experience is that this is a problem that does cause a loss of tax.

Oddity in photo

mikewhit | | Permalink

PS Why is the magnifying glass showing "Federal Records" - shouldn't it be looking at stuff in the UK ??!!

frustratedwithhmrc's picture

We should take the musings of Mr. Richard Murphy with a pinch of

frustratedwithhmrc | | Permalink

Please be aware that the "Tax Justice Network" is not a truly independent research body, but one which pushes specific aspects which are part of its Social Activism agenda. While many of its research activites are directly or indirectly sponsored by organizations that have a purely social improvement role (e.g. the Joseph Rowntree Trust - http://www.taxresearch.org.uk/Blog/2010/08/02/tax-research-uk-new-fundin...), other supporter organizations push a very politicized agenda - such as the Public Service Union PCS (http://www.pcs.org.uk/en/campaigns/tax-justice/).

This is not to denigrate either the work that the TJN has done or the organizations with which it is associated, however if I were a small research body and a large public sector union provide me with a grant or specific funding to look into problems associated with the Tax system, then I would be unlikely to get further funding if I proposed solutions which would reduce the ranks of civil servants in HMRC (e.g. a massive simplification of the UK tax code).

In this regard, I do not consider the TJN to be truly impartial, in the same way that I don't consider the CBI to be truly impartial. They both reflect the agenda's of their members and supporters.

johnjenkins's picture

Not new

johnjenkins | | Permalink

This is nothing new and has been going on for years.

If you made Directors responsible they would resign before it got to that stage etc. etc. etc.

Unfortunately a pointless exercise, Richard.

What you really should be looking at is why this is happening. The answer is simple Too many penalties for too many trivialities. HMRC will not chase outstanding tax or penalties against Limited Companies that don't have assets - not rocket science to understand - so they chase sole traders to make up some of the difference.

Nichola Ross Martin's picture

Not new, but worth shouting about

Nichola Ross Martin | | Permalink

Richard, I may not always agree with you, but this time, you are spot on.

Bearing in mind that HMRC seems to be taking a decision to axe ESC C16 for all but the smallest companies, on the grounds that people were abusing it. It is quite extraordinary how feeble HMRC has become in policing the system.

I have some amazing tales to tell on this topic; HMRC systematically fails to bother to pull up disappearing companies for any form of scrutiny or enquiry (they are also  lax on LLPs too, it seems). It means that you can trade one day and disappear the next. When there is the prospect of insolvency, HMRC does not even both to attend creditor meetings.

Companies House attitude on this is a complete shocker. What really gets to me are the double standards - this means that living and honest companies take the flack.

Things will have to change though, as we have joint filing between Co Hse and HMRC and so it will be inequitable and no longer value for money to run different penalty, different appeal and different enforcement systems in tandem.

Virtual tax support for accountants: www.rossmarti.co.uk

 

 

 

abelljms's picture

penalties

abelljms | | Permalink

 

 

 

 

HMRC issue enormous numbers of penalties instead of focussing on obtaining the missing return, and then the penalties are removed often once returns received.

Getting the missing returns is best way of knowing what taxes are due, but HMRC seem ineffective in knowing how to do this?

in PAYE they send out so many incorrect penalties they are routinely ignored, which is craaaaazy!

 A related issue is that HMRC are by far the most active winder-up of companies. they do this blindly instead of teasing the tax arrears out of cos. Once a company is binned there is little they can do to get a company to pay as it will always have no assets.

 

Old Greying Accountant's picture

How many of those companies ...

Old Greying Acc... | | Permalink

... that were less than 2 years old had ever traded. There are many reasons companies are formed. As it is so cheap many people do it to reserve the name for a project which never gets off the ground, have an idea to start a business then get offered a job are just two. I would not be surprised is the vast majority of those companies either never traded or made losses as they failed to get off the ground.

My thoughts have always been that dormant companies could just report this on the annual return and not have to waste everybodies time filing a meaning less set off accounts. The should then be an obligation to report to Companies House within 3 months of trade commencing at which point the annual accounts filing requirement is triggered, along similar lines to the CT regime with CT41G's. There should be strong penalies for mis-declaration and a requirement to produce accounts if the company has traded.

What should be looked at in more deatil is teh ease in which Companies are able to be formed. It is far too easy and many people without the skill sets required, or finance to buy the skills in can form a company online for a few pounds.

Limited liability is a privilege not a right and is too easily given. If potential owners and directors had to demonstrate a knowledge and understanding of their duties and responsibilities before being able to form a company I would be for that. I also see merit in looking at minimum share capital requirements, possibly supported by bonds, along the lines of ABTA etc, so there is some protection for creditors - and possible some mechanism for close companies to have to maintain a minimum Balance Sheet level by further addition of capital if reserves become deficits through continued losses.  Another thought is that for loss making close companies, directors renuneration could be restricted to the minimum wage if there are no reseves to cover losses. I know it sounds harsh, but why should the directors be able to maintain their standard of living, or even just pay their mortgage using unsecured loans from their suppliers, who may well be unaware of their customers financial situation and are struggling to pay their own way as a direct consequence? Also for close companies, unsecured directors loans should rank after unsecured creditors, if they put money in to buy a specific piece of equipment or vehicle etc then they should formally charge it.

Sorry if these rantings are jumbled but they just flowed out that way. Some are not thought through as have just occurred to me, all just meant as food for thought. 

Personally I am heartily sick of this sensationalist reporting and the extraction of "fact" from tenuous extrapolation.

 

 

jline199's picture

Bottom of the Harbour .... only easier!

jline199 | | Permalink

 The Bottom of the Harbour scheme is detailed :-

http://en.wikipedia.org/wiki/Bottom_of_the_harbour_tax_avoidance

Only now, in the UK, it is even easier, for someone determined to break the law. That is, extract the assets and cash from the bank account, then let Companies House strike off the company. Thus the company ceases to exist, and the shareholders cease to be shareholders and the Directors cease to be Directors, and no one can answer for the company, now an ex-company!

Simples! That is, unfortunately it is all too easy for someone to defraud HMRC.

No costs to limited liability

osneil | | Permalink

It is about time this was tackled properly.  Forget penalties.  There is a much simpler solution.  Those who choose to benefit from limited liability should accept their responsibilities as the "cost" for benefitting from limited liability.  Where directors fail to file accounts or annual returns on time, why not simply make them personally liable for the debts of the company until the situation is rectified.  I suspect compliance would increase massivley at a stroke.

This would not impede entrepreunership as there really is no reason for not being able to file information within 9 months of the year end, and directors who cannot cope with this really should not be given the benefit of limited liability in the first place - given that such limited liability is really a cost borne by creditors including the public, suppliers and the taxpayer.

 

abelljms's picture

unkolekted

abelljms | | Permalink

 

 

 

 

 

Because legal fees are ‘free’ to HMRC collectors they litigate freely via winding up orders. They are also inundating an inadequate court system with pointless work. Instead they should negotiate properly with tax-payers, as once they bin a company there is no pressure on the directors to pay up anymore. I know it’s bad that taxes are paid late, but that’s better than losing it.The parameters they work under at moment are too restrictive re period they will allow. And of course they allow far too much time to pass before they properly chase for monies they know about e.g. CT/SA off returns And conversely the vicious penalties regime for late VAT means there is little point trying to pay once those kick in – makes a loan shark seem cheap. It would be sooooo easy to massively improve their tax collection rates, but they don’t seem interested.

AIDING AND ABETTING

stephen.lowe.ka... | | Permalink

As a practicing accountant, we have had Ltd company clients in financial difficulty advised (by an insolvency practicioner) to just "walk away" and allow their companies to be struck off by the Registrar.  The major creditor was HMRC. 

I would be interested to hear others' views on where would we stand professionally, morally (call me old fashioned) and from a Money Laundering perspective if we stood by and watched or even assisted such an approach.

kenny achampong's picture

At last

kenny achampong | | Permalink

Well at last they have noticed the problem. For the last few years, corporation tax has been virtually optional for smaller companies that dont care if they have any trading history built up or not.  

Obviously nobody knows how much has been lost to the Treasury, but I bet you it's a lot, lot more than the amount saved by shedding 30,000 jobs at HMRC.

Struck off companies

dmmarler | | Permalink

Directors are responsible for their companies.  Directors are responsible for ensuring proper accounting records are kept for their companies - see the Companies Acts.  Directors are not supposed to trade while insolvent, so if they have traded and expend the profits without making appropriate provision for tax, then they are personally liable.

If the company ceases to exist (because it has been struck off), then any subsequent trading profits become those of the former directors trading in partnership and can be assessed by HMRC.  

Once HMRC is notified of a company strike off by Companies House it could make an estimated assessment of the company's profits to the date of strike off, and then an estimate of partnership profits for all the former directors for subsequent accounting periods.  The tax would be recoverable as they all have personal assets.  Just think of all the extra work this would bring in for tax practitioners!

Companies being struck off

Helen Rolfe | | Permalink

I've been ranting about this one for ages - the herding of small businesses and sole traders towards incorporation by the incentives of Gordon Brown some years ago has opened up these easy possibilities. Form a company, take low salary and "drawings" supposedly dividends, but probably no calculations to see if profit is actually available, from company; ignore the warnings from Companies House and they'll just strike off your company for you. There's no assets - company will be what should be a sole trader or small partnership providing services, certainly little or no money in a bank account.

Job done - no insolvency costs either.

If Companies House think that the threat of strike off is a threat at all in these cases they are not even on the planet. This is a "thankyou very much" you've just let me walk away from a shed load of tax - and probably accountants fees to boot.

There should be a significant minimum capital requirement to form a Limited Company, something in excess of £25k - now that would be a deterent. Thousands of small Ltd Companies are formed purely for the tax saving of taking low salaries and the rest as dividends - not for commercial reasons at all.

 

the fact remains

The Black Knight | | Permalink

That companies house and HMRC are a complete shambles and seem to work against each other. We often have HMRC collectors phoning for us to tell them that the company was struck of about a year ago and we had not acted for a number of years. They seem to be completely unaware.

We have seen many companies start up, trade and never file accounts or decide never to file the last set of accounts or repay the overdrawn directors loan account, or pay anyone else for that matter its a win win for those that do it. The Insolvency Service are just as useless as well.

The BBC even had an example of how effective this can be on rogue traders, but failed to ask why companies house allowed these practices to continue, focusing on the continued defrauding of little old ladies that the system turns a blind eye to,

And thats before you address the non compliant accounts that are filed.

Unfortunately the Companies Act is not worth the paper it is written on, and the penalties therein even less.

Whether someone deliberately fails to pay their taxes or not is probably difficult to prove, but the system does work very well for those that thought this is a legitimate way of not paying their taxes.

However if you are legit and late with a return (all sorts) you will be hit with a penalty and because you are closest bullied into submission.

The world has gone topsy turvey !!

Old Greying Accountant's picture

Thanks Helen ...

Old Greying Acc... | | Permalink

... for reminding me, that is why they won't tighten up incorporation, because they want you on PAYE, car benefits etc, much easier to fleece that way - well worth the few billion lost in tax and filing penalies on the odd black sheep company.

Cynical, moi?

Chasing reliable people rather than unreliable ones

aburt01 | | Permalink

I am sure the report makes many good suggestions, here is one I would follow up - Banks accounts should be made known to HMRC when companies are struck off.  Between them and Companies house they must have made a note of the company bank account when registering the company.  Certainly they used to when registering for VAT.

HMRC should be automatically entitled to know when activity has continued in the year concerned, the money laundering regs. ensuring the banks have to disclose.

I suspect though with HMRC and the management there, it is a case of "chasing the easy ones we know about" rather than investigating those on the fringes.  I would do the reverse - spend 80% effort on fringe, 20% on the reliable guys.

I don't agree with the report's conclusion they need more staff; I believe they need better automatic procedures/systems, better targetting and training.

Lies, damn lies, and statistics...

Ian McTernan CTA | | Permalink

Not sure how he worked out the £16bn..which works out at £32,000 for each of the 500,000 struck off.

I wish I could get paid for coming up with reports like this..but then I'm not a left wing politically motivated organisation being sponspored by other left wing non-profit making organisations to come up with sensationalist figures to try and increase civil service numbers in a time when Labour have left us with a bloated civil service with too many staff and too many objectives and a huge Budget deficit (note: none of this was caused by the banks, but Labour has tried to blame it all on them anyway).

The problems at most Government departments can be summed up quite easily- the people at the top change the goal posts every five minutes and want stats on everything, so 20% of the staff's time is spent compiling statistics, and then they are pulled from pillar to post as HMRC decide to 'target' something else before the last project had any chance of finishing.

HMRC and CH are asked to do more and more each year with less and less staff- GB and his crew added thousands of extra pages to the already overly complex system and yet at the same time continually reorganised offices and gave those staff no chance.

More on topic, fines and penalties on a fixed basis don't encourages late filers to file on time, or indeed at all.  They do encourage people to strike off companies they are no longer using or have never used.

Yes, some people are undoubtably abusing the system, but the majority of these companies being struck off are new ones that weren't used, or traded for a short period, lost money and closed down- or has the author never studied the failure rate of new businesses, most of which lose money?

Maybe the report should have been entitled 'billions of tax losses go to waste each year as companies get struck off and lose their chance to carry forward those losses'.

I wonder if I can get someone to pay me a small fortune to study the extent to which companies are failing to utilise these losses.....

wotaloadarubbish!

bald and bearded | | Permalink

So the average company struck off fails to pay 32000 in tax - I don't think so, Sir! I hope you weren't paid a lot to do the research = more lies damn lies and statistics! Yes I bet there are a number that fall through the net, owing tax.....But I do feel that we could all identify companies who never get contacted by the revenue and go down owing many years- and others who are compliant  and get shouted at for the first misdemeanour!

all a bit tabloid

ireallyshouldkn... | | Permalink

£16BN? Thats £32,000 for each of the 500,000 companies that get struck off. 

This is clearly absurd. I would have hoped Accounting web would treat such statements with a little more caution, or have we gone "tabloid"?

In my experience of working with lots of micro businesses many people form a company on the back of a business idea (or indeed multiple companies) not having a clue about what they are doing, and this would form the bulk of the closures. Assuming there is not much in the way of taxable income (often its a few pounds of turnover, and would be loss making by the time we prepared the accounts) we often advise such enquiries to let CH close it down and walk away and start up again properly as a sole trader.

Not withstanding the above, there is of course a hole that allows businesses to trade for a while and then close down and disappear into the sunset having filed nothing and paid nothing.  Tracking that properly would be sensible but of course require resources. The hard bit is knowing which of the 500,000 businesses are actually 'real' and may have a tax liability and which are formed in ignorance by people who know nothing about the topic which they are dealing with. For serial offenders you would have thought tracking director's names and addresses would be none too difficult, so on that point some valid thoughts, shame its ruined by the sensationalist tabloid  style.

 

Edited to add - the rash of £32k posters arrived whilst I wrote this!

 

TomMcClelland's picture

Hilarious made-up nonsense

TomMcClelland | | Permalink

It annoys me too, when company directors wilfully walk away from their company debts, but I seriously doubt that there is significant substance to the particular "problem" outlined in this article. Did anyone of the commentators who issued an outraged soundbite actually reach for a calculator and engage their brain before engaging their mouth? Suggesting lost tax of 16 Billion pounds from 500,000 strike-offs implies an average tax loss of £32,000 per strikeoff. Given that a very large proportion of those strikeoffs never traded at all the implied tax loss per trading company would be far higher. But in any case the tax is only lost if there was ever any decent chance of recovering it, and in the overwhelming majority of business failures there is no cash left to pay the creditors, regardless of how hard they try to recover the money.

I'd love to see the methodology that was used to come up with that £16Billion figure. You'd have to do something like examine in  detail the circumstances surrounding a random sample of eg 100 strike-offs, and determine that aggressive recovery by HMRC would have secured £3.2million in total from them. The very idea is risible.

EDIT: Ah, I see that I reached for my calculator and typed too slowly, so I've ended up duplicating the commentary of others. So my post could equally well be represented by an upward pointing arrow and sign, "What He Said".

Agree

alan159 | | Permalink

This is a huge problem, HMRC and Companies House are very lax at letting this happen.  We are aware of several cases of this happening every year, HMRC have the powers to act but mostly appear not to use them.

I see no problem with the use of limited companies just with HMRC and Companies House policing of them, it appears to be a very easy way to avoid tax and disappear.

Tackled properly I am convinced that this would contribute to the tax collection and help reduce the deficit.

 

 

struck off companies

ianhend | | Permalink

I have the bitter experience of selling my professional practice to an ACA, to his Ltd Company, who then trashes the practice, and you don't get paid out ( see an earlier thread 'disappearing accountants').  In my personal experience you can object to the dissolution of the company,  make formal complaints to the ICAEW, right through to making formal fraud allegations to Companies Investigations Division and to the Police and nobody, but nobody will take the case up.  It is not possible, in my view, to secure justice in England.   Having speed read the report, and I similarly dislike the political bias that other contributors have noted, Richard Murphy (whom I knew at the merged PMM/KMG firm that became KPMG) has raised a matter of considerable  importance.  I now live in Scotland where I note the ruthless upholding of the Companies Acts by Coys House in Edinburgh - they routinely  prosecute for failure to file - a question of resources I guess -  but an interesting difference of approach on either side of the border........     

Sacre Bleu!

Vaughan Blake | | Permalink

A little while ago I explained to a new client from France how we could establish him in business in the UK.  Either as a sole trader or a Ltd company.  He did not actually say "sacre bleu" as he was speechless with amazement at how easy and lax it is compared to France.

Whilst I would never advocate anything approaching the French system in its entirety, maybe we could take a peak across the channel and see if there are any lessons to be learned.

Dropping the VAT registration limit to zero for companies would be a step in the right direction.  Thus if you register a company you are automatically registered for VAT (and a PAYE scheme whilst we are about it!) .  Then make all those with a turnover of up to £70,000 use the flat rate scheme.

Old Greying Accountant's picture

But then ...

Old Greying Acc... | | Permalink

... if I got a letter from the "Fiscal Procurator" I would pay, the very name sends a shiver down your spine, you would expect some sort of Judge Dredd figure to come and kick your door in.

"Registrar of Companies" doesn't have the same chilling effect, I would expect someone like Hector the Inspector to turn up in a bowler hat!

I asked Yvette Cooper MP to look at this very issue when she was

topjockey10 | | Permalink

A client did exactly that, deliberately failed to file his annual return, waited for the strike off and set a new company up the next week, two years profits trousered.

Mrs Cooper was passed my detailed observations and the evidence of this being a new "tax planning" idea on to a government department who were "aware of the issue and looking at it" but basically fobbed me off. Two years later we are no further on and the strategy is gaining recognition.

No surprise to me any of this.

Struck off companies dodge £16bn a year

peterball | | Permalink

 There is a simple solution. A change in the law is required, which removes all limited liability for all directors, in the event of any debts owed to the state (or the Crown). In addition just increase the cost of all company formations.

 

johnjenkins's picture

WOW

johnjenkins | | Permalink

We have had a bitch haven't we?????????

Firstly Company Bank Accounts are frozen and monies taken by the solicitor once a company has been struck off.

Making Directors and/or shareholders responsible would defeat the object of the exercise and probably lead to bigger business (which GB wanted) with not a lot of competition and even more tax avoidance. Why should Directors/Shareholders lose their personal Assets when their company owes HMRC money due to a client not paying them. etc. etc.

Yes it is all GB's fault for being greedy (not personally) and his quest for dictatorship.

The only real solution is to go back to the days before GB. Yes, there were still problems but not on the scale that we have today.

This will upset a few people. Do we actually need Companies House for SME's????????????? Times and business change but some of our laws haven't caught up.

This analysis comes free!!!!!!!!!!

 

 

jline199's picture

Let's match the Australian anti-avoidance legislation

jline199 | | Permalink

 Earlier in this topic I provided a link to an explanation of the Bottom of the Harbour scheme. That explanation includes mention of the Australian Crimes (Taxation Offences) Act 1980. That sounds perfect to me. That is :-

In 1980, the Crimes (Taxation Offences) Act 1980 put an end to bottom of the harbour schemes. Under the act it became a criminal offence for any person to make a company or trust unable to pay tax debts (income tax, sales tax, etc), or to aid or abet any person or company doing so. The act thus caught both those in the schemes and the promoters of such schemes. It made it unnecessary to go through the crime of defrauding the Commonwealth that had been so poorly handled at the Deputy Crown Solicitor above.

This act was controversial at the time, since tax avoidance was (and perhaps still is) regarded as something less than an outright crime. Tax matters might normally be addressed by closing a revenue loophole, the act instead treated bottom of the harbour schemes like frauds.

Persona lliability

osneil | | Permalink

"Making Directors and/or shareholders responsible would defeat the object of the exercise and probably lead to bigger business (which GB wanted) with not a lot of competition and even more tax avoidance. Why should Directors/Shareholders lose their personal Assets when their company owes HMRC money due to a client not paying them. etc. etc."

The above comment misses the point.  Directors should not be personally liable merely because of the failure or insolvency of the company.  They should however bepersonally liable when they have failed to comply with their duties to file accounts etc.  There is a world of difference and I do not see how the latter would defeat the object.

 

johnjenkins's picture

er

johnjenkins | | Permalink

Directors are personally liable for not filing accounts on time and can be prosecuted. The fact that this rarely happens is proof enough that the penalty system is wrong.

Again, outdated laws for an outdated system.

Nichola Ross Martin's picture

Do we need Companies House for SMEs?

Nichola Ross Martin | | Permalink

Great point there John.

 

Do we need companies house at all ?

The Black Knight | | Permalink

They are only a filing organisation as they keep telling us,

and accounts could be published on line anywhere, now we have the internet!

If we had no deadlines or penalties no one would be in breach of them,

I understand that companies House have a target of no penalties, which would explain in civil service fashion why a blind eye is shown as each default upsets their target.

£32,000 lost Corp Tax per company!

taxbakbristol | | Permalink

-- j baldwin   Patently absurd......If companies that fail  each owe  £32k in tax why are we in recession?

Another waste of time report..not worthy of Accounting Web to show it!

Whose question ?

mikewhit | | Permalink
  • Now ask the same question to The [Telegraph Readers] Taxpayers' Alliance and see what answer you get ...
  • Yes, they should have a quick look at how much money (if any) is coming in via Bona Vacantia, from frozen bank accounts, as well.
  • HMRC do not help, coming along with their sledgehammer winding up orders, rather than a Time to Pay arrangement in which the debt is repaid albeit more slowly. If wound up, they get nothing, if no assets exist.
  • That "up to £16 bn" is the same "up to" as in "up to 8 Mbit/sec" used in ISP broadband adverts !

Re: Bottom of the harbour schemes

jonbryce | | Permalink

Well I do know one ex client who is currently in prison for doing that, but that is one client in my entire accounting career and most accountants never see a tax prosecution. There are provisions for claiming back unpaid National Insurance in these circumstances, and I've seen them used twice. Certainly the existing provisions should be used more frequently, and perhaps they could be strengthened

TomMcClelland's picture

The 16 Billion pound figure is completely made up

TomMcClelland | | Permalink

Intrigued by the claim of £16 Billion pounds of unpaid taxes from struck-off companies I troubled to actually follow the link to read the report. I wish that I hadn't bothered. That is 10 minutes of my life that I won't get back.

Essentially the £16 Billion figure is completely made up on page 5 of the report. The author simply makes up a figure of £30,000 per company from out of somewhere that I shouldn't mention on a family forum, and multiplies it by a bit more than 500,000, that being the extraordinarily high number of strikeoffs in 2010. A methodology so fatuous that it deserves nothing but derision. Having discovered this absurdity early on reading further seemed redundant.

The MPs who endorsed this nonsense should hang their heads in shame (don't hold your breath, anyone, when "shame" is used in the context of an MP). I guess this is an example of the kind of careful rigorous analysis of a problem that we can expect from the Greens. Classic confirmation bias. They like the conclusions of the report, therefore to examine how the conclusion was arrived at is a needless troublesome waste of mental effort.

johnjenkins's picture

Tom

johnjenkins | | Permalink

I don't actually think anyone in their right minds believe £16M let alone £16bn. So why use "made up" figures to tell the Accounting world what we already know and have done for years.

If you look at the REAL figures very closely you will find that prior to GB what was owed in uncollectable tax & penalties nearly matched what was owing in refunds etc. that weren't claimed. That is why the attitude of "let sleeping dogs lie" was adopted.

Of course we all know what happened then!

 

Tom 7000's picture

The answer

Tom 7000 | | Permalink

For a company to be struck off it must file a final set of accounts with an audit report. Failure to do so within  18 months of the year end means the directors get a £10k personal fine and are bankrupted if they dont pay. Reason it has to be audited is so those big big big overdrawn directors loan accounts pop right up on the related party note.

I have often thought it was a good scam as it stands....

 

johnjenkins's picture

Tom 700

johnjenkins | | Permalink

who's going to pay for the audit report, the Directors????????

As soon as you make Directors/Shareholders financially liable the idea of Limited Liability goes out of the window (some might say that is a good thing).

There has always been a risk in business and as long as the Status Quo is kept there are few problems. The reason why we are in this mess today is that GB thought he could "buck the market" and so the scales are going one way then the other. Heavy penalties on one side, massive tax avoidance on the other.

this is not really a shock....

justsotax | | Permalink

and its been going on ever since Ltd status existed (I would imagine).

We can all take the moral high ground when we look at particular businesses or directors who appear to 'get away with it'.....well maybe if you take that stance then I presume in future you will not be advising clients to incorporate....or perhaps you will have a 'fit and proper' persons test, indeed as there financial adviser perhaps you would like to take joint and several liability for any monies owing?

If limited status didn't exist then I wonder how many bankruptcy's we would have - presumably an equivalent amount to those that would have been a company.

And whilst it may be the case that you can make someone bankrupt - it doesn't mean you will collect the money, afterall when acting as a sole trade/partnership how many professionals put any assests into there spouses name to leave them with no personal assets?

There are laws already in existence for those who 'cheat' the system - so we already have the choice to prosecute where we feel it is appropriate - perhaps it is those numbers that are relevant!

 

 

 

 

 

 

Old Greying Accountant's picture

What is shocking ...

Old Greying Acc... | | Permalink

... is people's inability to spell and punctuate proper in there comments.

What wouldn't be shocking is if I were to find out the compiler of the report used to work in the treasury!

frustratedwithhmrc's picture

Unfortunately not.

frustratedwithhmrc | | Permalink

Mr. Richard Murphy (for it is he) is a Chartered Accountant who has given up respectable work as part of an accountancy firm to theatrical types and has now taken on the glamourous role of rent-a-quote for public sector unions and other organizations which share his particular "Social Activist" agenda and have deep pockets for a bit of no-questions-asked Tax Research.

http://www.taxresearch.org.uk/Blog/richard-murphy/

You may have seen headlines about "The 120 billion pound tax gap" etc. These are the work of Mr. Murphy and the so called "Tax Justice Network". The analysis is often weak, biased and misses out vitally important aspects, for example the 120 billion pound tax gap fails to take into account prior year losses carried forward, capital allowances, etc.

 

Bring Back Auditing

I'msorryIhaven'... | | Permalink

In my leafy and affluent village, I know of a number of wealthy (unconnected) individuals who variously:

1 Trade a company for say two years, then walk away leaving the company to be struck off.

2 Trade a company for many years, but each year file the DCA form for dormant accounts with Companies House.

3 Install a dummy (as a) director and perhaps as a minority shareholder, retiring themselves to a relatively safe shadow-director distance.

We're not talking nickels and dimes - these are people with six-figure incomes (tax free, to boot).

Of course, many correspondents to this thread will be aware that were HMRC to catch up with those directors, a tame IP is all that would be needed to paste over the cracks. Furthermore, it's so easy to swap company names and move assets from one company to another that creditors, HMRC included, have some difficulty keeping up. 

I think Tom has "the answer" with the return of auditing for small companies. Aside from close audit-attention to DLAs, close audit-attention to beneficial ownership and shadow-directorships would help avoid the dummy director manoeuvre outlined in (3) above. 

Don't know how you would finance the auditing of strike-offs though - maybe by charging existing companies a £1,000 surety. 

Old Greying Accountant's picture

We don't need a full audit

Old Greying Acc... | | Permalink

Just a financial one to make sure that all monies have been properly reported, and they should be by a firm that has not acted in respect of the client or any related parties for at least 5 years, and is a registered auditor or a IP.

I think a minimum share capital of at least £5000, supported by a bond, should also be a minimum requirement for limited liability status.

 

frustratedwithhmrc's picture

I'm guessing you work for HM Treasury or an Insolvency Practitio    1 thanks

frustratedwithhmrc | | Permalink

I think a minimum share capital of at least £5000, supported by a bond, should also be a minimum requirement for limited liability status.

What we need is growth, not barriers to those willing to take the risk of setting up their own businesses. Yes - it is true that there are some unsavoury characters and dubious practices out there, but while £5000 might not be a great deal to you or I , it is a significant amount of money to the vast majority of people.

The people who setup their own businesses often do some from the most disadvantageous of financial positions - often because there are no other oppertunities for them.

How many times has someone come to you and explained that they'd been made redundant and no-one was prepared to take them on as an employee due to being over 50 (don't tell me there are laws to prevent discrimination, we know it happens).

Are you SERIOUSLY going to tell the client - "Okay. Your redundancy money will cover your companies bond payment, what are you going to do about starting capital?"

If we want to get UK PLC back on it's feet again, we need to be removing barriers to enterprize, not create more of them - better enforcement, not more obstacles.

Old Greying Accountant's picture

No, I am a practising accountant and I don't have an insolvency

Old Greying Acc... | | Permalink

You don't have to start off as a limited company, you could be a partnership or sole trader.

I am sick of my clients who run respectable companies being rooked either by people who start up a company without proper planning or finance and leave my client with a big hole in their sales ledger and no redress, or by numpties who think the know it all but couldn't run whelk stall.

To me limited liability is a privilege not a right and should be earned. As well as the growing army of serial directors starting and trashing companies in full knowledge they will leave a pile of debt behind there are far too many people running company bank accounts as though they were their personal bank accounts, totally unaware of the legal distinction between themselves and the company.

The ones with a dollop of redundancy are the worst offenders, especially if they come from a large company back ground. They dilligently fill in expenses claims to claim back all they can, not having got their head around the idea they have to fill the pot up before they dip into it.

Get your business up and running, get through the critical first two or three years then incorporate, it is quite tax efficient too, because you can get tax relief on the first years losses against other income rather than having to wait for the company to hit profit.

Also, if you knew what a bond was it would help. You wouldn't have to put up £5,000, just surety (e.g. a second charge on the house). If the business plan is viable and the bank are willing to back it then you should be at quite a low risk.

I am all for entrepreneurial enterprise, but not recklessness. I still think if you aren't good for £5,000 you have no right starting a limited liability company, go for one of the other options - why should you have the right to bring everyone else down with you - which is often what happens.

 

 

johnjenkins's picture

Limited Liability

johnjenkins | | Permalink

has not got to be earned. It is a legal right and to me, these days in business you need it.

How many large concerns (not mickey mouse companies) have gone under (through change of bank or government policy) and left many small companies in a mess, even forced them into liquidation.

This strive for total compliance will leave our business in a state of stagnation. HMRC is a classic example.

Pages