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Closing down Limited Company

Company has a 10K corporation tax liability

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My client 12K tax liability if you include the interest and penalities. 

Client doesn't have any funds and wants to close down the company as its not trading.  Surprisingly client is not being chased by HMRC for this debt and its around 18 months old.   I noticed HMRC are fairly hot with PAYE debts but don't bother with corporation tax. 

If my client files DS01 HMRC will object.  I never see HMRC petitioning to close down companies so what will happen to the company.  

Client cannot afford to appoint liquidators. What is the course of action my client can take?

By the way many thanks for all your help, support and invaluable advice during the year and wish you all a very happy christmas and happy new year.

 

Replies (27)

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By johngroganjga
24th Dec 2021 12:36

How has the company got no funds? Where have they gone?

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Replying to johngroganjga:
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By Jim100
24th Dec 2021 12:51

Dividends

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Replying to Jim100:
RLI
By lionofludesch
24th Dec 2021 12:58

Jim100 wrote:

Dividends

Dividends would be out of profits. They wouldn't exceeed them - if they were lawful.

If they were not lawful, the shareholders could be required to repay them.

Take care here.

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Replying to Jim100:
By johngroganjga
24th Dec 2021 13:04

Jim100 wrote:

Dividends


If the company is now insolvent, as you say it is, some or all of those dividend payments must have been illegal, and the shareholder will need to repay sufficient of them to enable the company to pay its tax debt before the company can be struck off.
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By David Ex
24th Dec 2021 12:51

Jim100 wrote:

Client cannot afford to appoint liquidators. What is the course of action my client can take?

Who’s paying your fees??

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Replying to David Ex:
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By Jim100
24th Dec 2021 12:55

I am not charging anything at the moment as he simply posed the question about closing down the company. Should I need to do anything I shall get the money upfront. When I say he cannot afford liquidators I mean he cannot afford 5K perhaps 1K he can scramble together somehow.

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RLI
By lionofludesch
24th Dec 2021 12:56

If the company is insolvent, surely it's up to the creditors to appoint a liquidator, assuming that's the route they wish to follow.

But the first point, as John implies, is to establish whether the company does have assets which it has not yet recognised. Such as a loan to its directors, for instance.

So far as I'm aware, it's not unlawful to make a loss, nor to make bad business decisions but you need to establish whether this is indeed the case. The mere fact that the company has a Corporation Tax debt suggests that it is not.

Beware of assuming that HMRC will not pursue the debt, They seem to be getting more wick in opposing liquidations and about time too.

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Replying to lionofludesch:
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By Jim100
24th Dec 2021 13:03

Corporation Tax Liability relates to 2018. Company not traded since. No assets and any remaining funds taken as dividends.

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By David Ex
24th Dec 2021 13:10

Jim100 wrote:

Corporation Tax Liability relates to 2018. Company not traded since. No assets and any remaining funds taken as dividends.

So the company has paid dividends in preference to paying the 2018 CT liability? Was the company solvent when the dividends were paid?

There weren’t any “remaining funds” if HMRC are still owed £10,000.

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Replying to David Ex:
RLI
By lionofludesch
24th Dec 2021 13:11

David Ex wrote:

Jim100 wrote:

Corporation Tax Liability relates to 2018. Company not traded since. No assets and any remaining funds taken as dividends.

So the company has paid dividends in preference to paying the 2018 CT liability? Was the company solvent when the dividends were paid?

There weren’t any “remaining funds” if HMRC are still owed £10,000.

Fair point.

But now the issue is clouded as the dividends could have been lawful at the time they were paid.

Timing is now everything.

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Replying to David Ex:
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By Jim100
24th Dec 2021 13:37

Yes basically withdrew the funds before the company tax return was filed and liability ascertained . Company was trading and solvent at the time dividends was paid.

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By johngroganjga
24th Dec 2021 13:52

Jim100 wrote:

Company was trading and solvent at the time dividends was (sic) paid.

So how is it insolvent then? You said the dividend payments were the reason why it became insolvent. Now you say that it was solvent when they were paid. Perhaps you mean it was solvent before they were paid but insolvent after.

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Replying to johngroganjga:
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By Jim100
24th Dec 2021 14:31

Yes it was solvent before dividends were paid and insolvent afterwards.

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By Paul Crowley
24th Dec 2021 14:17

No, it was not solvent at the time if liabilty for tax was not taken into account when "dividend" declared

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By Matrix
24th Dec 2021 17:12

I usually find your posts very hard to decipher but you are spot on. (Can you please try sentences in 2022?)

The OP seems so opinionated about businesses taking money from the government through BBL but seems to be naive when it is one of his/her own clients.

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Replying to Matrix:
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By Paul Crowley
24th Dec 2021 22:00

Tax Dragon chastises me for the same issue
With clients I tend to meet or call, so speak rather than write so it is a two way process and I keep going until I am confident client understands the point.
Will take onboard

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Replying to Matrix:
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By Jim100
25th Dec 2021 12:21

I really don't understand your point when I have said that HMRC have not been chasing the client when they should be doing !! Also see my last point on this thread.

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Replying to Jim100:
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By Matrix
26th Dec 2021 09:11

You obviously take ethics seriously so I was surprised by your post.

Whether HMRC are chasing or not doesn’t change the liability or the steps required to close down a company. (In my experience they are actually pretty hot at chasing for unpaid CT at the moment.)

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By Paul Crowley
24th Dec 2021 13:37

Grey area
Real position is that director paid "dividends" when very unlikely that it had distibutable profits
Do not DS01
Any decent insolvency person would note the inappropriate dividends
Do and file nothing would be a reasonable policy

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By Hugo Fair
24th Dec 2021 14:20

"Client doesn't have any funds" is one of those phrases beloved of people who don't *want* to pay for something - as opposed are actually *incapable* of paying for it.

Forgetting for a moment Paul's eminently practical suggestion ... the honourable thing (an odd concept nowadays) would be to acknowledge the debt and do something about it - whether through TTP or by taking out a personal loan (as it sounds like the client owes money to the company that he is merely unwilling to repay).

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Replying to Hugo Fair:
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By Jim100
24th Dec 2021 14:34

Unfortunately its seems common to spend now and worry about the future later. Sometimes companies and people get in difficulties and use the tax money.

What is annoying is that HMRC has put no pressure on whatsoever on my client to repay the debt and its been 18 months now. With PAYE I have had HMRC on my doorstep. With corporation tax and VAT departments they are not that bothered so clients are not bothered too.

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By Paul Crowley
24th Dec 2021 14:42

HMRC seem a bit lax with just so much tax debt
Even more so on Personal tax from self-assessment
A bit more hard chasing and the Covid grants could probably be covered by existing unpaid tax debt
I have so many clients that just make no effort and owe unpaid tax for each year for several years

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By zebaa
24th Dec 2021 14:51

Director resigns. Company is warned by Companies house to appoint a director or the company will be dissolved. No action taken to appoint a director. Companies house seeks dissolution, HMRC objects, dissolution withdrawn. Three to six months passes, Companies house seeks dissolution, HMRC maybe objects or maybe doesn’t. If HMRC does, go round again. In the end company dissolved. There maybe come-back from HMRC if they decide to go after the director, but for £10,000 / £12,000 it seems unlikely. If they do the director is in not much worse case than they are now. However if VAT is owed they seem to be keener on that side of things. Note also the new rules about other directorships.

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the sea otter
By memyself-eye
24th Dec 2021 14:49

solvent before dividends?

What a feeble excuse - tell them to pay the tax owed and dissolve.

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Replying to memyself-eye:
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By lionofludesch
24th Dec 2021 14:57

memyself-eye wrote:

solvent before dividends?

What a feeble excuse - tell them to pay the tax owed and dissolve.

I would suggest that they're solvent after the dividends. They have a debt to collect from the shareholders for those unlawful dividends.

Tell them you can no longer act unless they pay the tax, Jim.

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By Jim100
24th Dec 2021 15:15

Its a sole shareholder and director

Yes I agree the client will luckily listen to my views. Hence he will try to pay the tax as its only the right thing to do.

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By bernard michael
29th Dec 2021 10:21

Is the company up to date with filing accounts with both HMRC & Cos House ??

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