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CT evasion?

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Hi, I would really appreciate your thoughts on the following.

I'm a Company director in a small start up Ltd company together with a shareholder/founder director. Founder was the director since the beginning and is also a shareholder/director in Foreign company.

Initially, Company was financed through loans by the Founder.

Since 2016 two more of his friends have become Company shareholders.

In 2017 the foreign Company became the main customer of the Company as Founder found a demand for the product in his own country. This was until now.

In September 2020 Founder decided to close the UK Company realising that the product was not viable in the UK market. Despite outstanding invoices, Founder has announced that the foreign Company won't make any payments until Company is fully closed, instead he will provide loans to the Company to make final payments personally. Invoices were raised based on service agreements which were signed by me first, then passed on to the Founder when he came to the UK, he would then bring them back signed and stamped by him on his next visit to the UK. This good faith process (sometimes agreements were signed much later) was followed since 2017 by the previous two directors too. Invoices for June-September 20 have been paid and have agreements signed by both parties. Outstanding invoices are for Jan-May 2020 period.

I'm not strong in CT but this looks like tax evasion/avoidance - Founder is avoiding higher CT for 2020 and is driving Company insolvent. Am I right to think so? If I am, what is my course of action as there is an obvious conflict of interest, as a consequence of which Founder can not make decisions.

Is there anything else to consider?

I hope I was clear. Many thanks.

Replies (9)

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By bernard michael
19th Oct 2020 09:51

Has the Founder stated that he will not advance money to pay the Jan-May 2020 invoices ??

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Replying to bernard michael:
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By Tykva
19th Oct 2020 17:54

bernard michael wrote:

Has the Founder stated that he will not advance money to pay the Jan-May 2020 invoices ??


He did, orally not in writing. And he wont sign agreements as a director of that company.
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By Duggimon
19th Oct 2020 09:52

It's a bit hard to follow but if the issue is that the invoices raised are not actually being paid yet, there's no issue with CT being avoided as companies don't use the cash basis.

So long as the invoices are properly recorded they should be included in the relevant accounts and tax return.

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Replying to Duggimon:
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By Tykva
19th Oct 2020 17:57

Yes, I agree about difficulty to follow.

No issue even if it is obvious why they are not being paid? My concern is that he is a director in both companies.

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paddle steamer
By DJKL
19th Oct 2020 10:15

I would suggest your big problems are more going to be the reducing value of your shareholding and, if you are paid as a director, possibly the loss of your employment as the UK company, effectively, fails- these are likely more legal questions though the only one that might give a little hope is if you are an employee as trying to take legal action beyond employment law is likely a waste of money.

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Replying to DJKL:
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By Tykva
19th Oct 2020 18:00

I am not a shareholder. I am an employee. I have resigned myself as there are other issues but I have 3 months notice.

I hope to avoid taking a legal action even within employment law.

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By Paul Crowley
19th Oct 2020 10:25

Have you discussed with the company accountants
This sounds like shut it down, No accounts, No filing of Corporation tax, No payment of corporation tax and you were the only UK director left in UK when this happened

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Replying to Paul Crowley:
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By Tykva
19th Oct 2020 18:08

I haven't yet. Bookkeeping is done within the Company. Accountants usually did year end only w/out any checks, I believe.

Yes, this is how he was pressing initially (leave the offices asap, let them have 2 months deposit only even though tenancy is until September 2021, etc). I don't think he wants to avoid everything but he does want to minimise expenses as much as possible. He will file accounts, CT. But should HMRC check within 7 years after, will they find this scheme as avoidance? I don't want this to happen during my directorship. I was thinking how to do it officially because the Founder is playing so many roles.

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By Paul Crowley
19th Oct 2020 10:51

Tykva wrote:

Hi, I would really appreciate your thoughts on the following.

I'm a Company director in a small start up Ltd company together with a shareholder/founder director. Founder was the director since the beginning and is also a shareholder/director in Foreign company.

Initially, Company was financed through loans by the Founder.

Since 2016 two more of his friends have become Company shareholders.

In 2017 the foreign Company became the main customer of the Company as Founder found a demand for the product in his own country. This was until now.

In September 2020 Founder decided to close the UK Company realising that the product was not viable in the UK market. Despite outstanding invoices, Founder has announced that the foreign Company won't make any payments until Company is fully closed, instead he will provide loans to the Company to make final payments personally. Invoices were raised based on service agreements which were signed by me first, then passed on to the Founder when he came to the UK, he would then bring them back signed and stamped by him on his next visit to the UK. This good faith process (sometimes agreements were signed much later) was followed since 2017 by the previous two directors too. Invoices for June-September 20 have been paid and have agreements signed by both parties. Outstanding invoices are for Jan-May 2020 period.

I'm not strong in CT but this looks like tax evasion/avoidance - Founder is avoiding higher CT for 2020 and is driving Company insolvent. Am I right to think so? If I am, what is my course of action as there is an obvious conflict of interest, as a consequence of which Founder can not make decisions.

Is there anything else to consider?

I hope I was clear. Many thanks.

Thanks (0)
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