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Insolvent company/director's loan

What's the cheapest way of sorting this out?

Company ceased trading in March, but has made about £7,500 net profit before tax. Y/e is 31/12/17. Heavy Director’s loan. Director is negotiating with HMRC about payment of last year’s corp tax as company had no money to fund this.

HMRC say they will agree a payment schedule with director if he states company has ceased trading, bank account is nil and all tax returns filed.

Of course all tax returns aren’t filed as no-one knows about this year’s tax yet. I am holding about £700 on behalf of the company. I’d like to pay this back to the company bank account now so director can at least use that to pay corp tax but am not sure if that would be the best way to handle things.

Would it be best to file DS01 now? I’ve tried calling HMRC but just get swept off the line with a recorded message. Am I right in thinking that when DS01 is filed they will send a demand for a corporation tax return for this year at that stage?


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07th Dec 2017 10:03

How can you file a DSO1 when you know there is a CT creditor. HMRC will go ape [***]
As for the £700 - perhaps you have some WIP outstanding?
Where will the money come from to pay HMRC after the CT debt has been "negotiated" and the company has ceased ?
Brain back in gear please

Thanks (1)
By Monsoon
to bernard michael
07th Dec 2017 12:14

They won't go ape. They might object to the DS01, but in my experience that's not guaranteed. I've never seen any other behaviour from HMRC in the event of a DS01 where they think they're owed money.

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By mrme89
07th Dec 2017 10:11

Are there any other creditors?

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07th Dec 2017 10:38

General routine is,
1. Prepare accounts and file
2. Pay tax
3. File DS01
I am intrigued that you say you are holding £700 on behalf of the company. This isn't to hide it from HMRC, is it?

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07th Dec 2017 10:47

Hi Monbeam
As indicated so rudely by bm, it would be incorrect to advise or help with a Strike off unless HMRC and any other creditors were first made aware that this was going to happen. If nothing else if you filed the DS01 HMRC would just object.

Are you authorised to hold client money? Whatever, you need to repay this to the company.

As the client has been in touch with HMRC he should tell them about the profit for the 3 months (that would be the return period) and find out if he can avoid having to do accounts and CTR, in cases I've dealt with in the past, HMRC accept there's no money to pay for accounts and CTR and have accepted a rough P&L to determine the profit and final tax bill.

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07th Dec 2017 11:02

Rude - moi?

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By jcace
07th Dec 2017 11:28

You say there's a "heavy director's loan". Does the director owe money to the company, or does the company owe money to the director?

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07th Dec 2017 11:46

Thank you all for your help. Having asked advice from Cos House and having tried to do the same with HMRC I've accepted that I am going to get a battering from certain people but I am glad of any further advice you can give me.
1. The Director's loan is from the company to him, so he is paying the corporation tax himself to HMRC under a payment agreement that is yet to be finally agreed.
2. The only creditor is HMRC.
3. The money I'm holding is the monthly payments he started to make to me on account for the preparation of accounts and ct return. This is not client money technically, I would have thought, but if I don't need to do the work he paid me for I'd like it to go towards the CT bill and would issue a credit note and refund the money to the company. Do you think that's the best way to get the money to him? And if he has shut down the company bank account would it be OK if I paid him personally or would that be seen as a fraud against HMRC? I suppose I could pay it direct to the company's HMRC corp tax account.
4. No-one is seeking to defraud/confuse anyone.
5. Companies House told me to file DS01. The reason I've asked you about this is because I am well aware that HMRC is owed money and thought this couldn't be right. I just need to know the mechanism of getting the matter sorted as the authorities either don't know or won't tell me.
6.How can I prepare accounts if the year end has not been reached? Do I change the year end to an earlier date? If I do this then of course the money I have will go towards that.
7. Paul's option seems to be the best one to start with.

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By mrme89
to Moonbeam
07th Dec 2017 12:07

I would prepare the accounts and CT return, shortening the ARD if necessary. That will give you the final position, particularly for the DLA and creditors.

Paul mentioned doing a rough P&L etc but it's still going to cost the client, and it's not going to cost the client much (if anything) more for you to do things properly - you still need paying for your time.

The director should then look at repaying the loan, and in turn, the company can then pay its creditor(s).
Can the director obtain finance to repay the company?

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to mrme89
07th Dec 2017 12:17

Thank you mrme89. I think that option may be the best one as I've already got the dosh and can manage on that given the small amount of work required. Director is currently trying to obtain finance.

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07th Dec 2017 11:52

Not necessarily recommending this.
Disengage but advise him to throw himself on the mercies of the Official Receiver. Can be uncomfortable for a while but eventually the company gets struck off.
The £700 goes back to the company less your invoice for any work done so far.

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By Monsoon
07th Dec 2017 12:13

You can still file the DS01 even if creditors are owed money.
An obligation of the DS01 is that you send a copy of said form to all creditors, inc HMRC.

Creditors are than able to either accept they won't get their money, or file an objection with CoHo.

There is nothing fraudulent or underhand about this.

Will the director eventually be able to pay the CT?

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to Monsoon
07th Dec 2017 12:23

I feel he won't be able to pay all of it in the end, but who knows, perhaps a fairy godmother will appear.

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By jcace
07th Dec 2017 13:38

Bear in mind that the amount the director owes to the company may not simply dissolve with the company. I believe that the Treasury Solicitor will have the right to enforce the debt. Equally, if HMRC were to object to the dissolution, they or the OR could seek to recover the amount owed to them by pursuing the debt.

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07th Dec 2017 13:40

There are several chicken & eggs here.

Yes, you could send in the DS01 but until and unless HMRC are prepared to accept the director as their debtor, they will not allow their debt to die with the company.

So your clients needs to ask HMRC if they are prepared to accept his personal undertaking to repay the debt in place of the company's liability so that he/you can get rid of the company and avoid accumulating and unnecessary compliance.

The rough P&L I sent in for my client was just the P&L from their bookkeeping, and in another case I just wrote in a letter that the company had £X sales & £Y expenditure in the few months to cessation, and HMRC were prepared to accept this in place of a load of wasted paper and fees in full accounts, CTR return and comps.

If you have to do formal accounts then, yes, just do them for the 3 months, the stat year end is irrelevant and if you get the DS01 in asap Companies house needn't get anything.

With regard to the money you hold, you are OK if this has actually been invoiced, I'm guessing that's what you meant by saying you hold the company's money.

Any overdrawn DLA, in excess of the CT liability the director agrees to inherit, is a potential problem, in terms of S455 and maybe P11D? but, again, unless we are talking a huge sum, and considering that the company is being closed, HMRC would probably ignore it.

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07th Dec 2017 14:38

Next gripping part of the story: I called HMRC and they were fine about P & L from VT. They gave me a load of tosh about being able to email via website which I quickly proved was impossible. They then said I could put in the post. It's going to be more informative than micro accounts. I'll file a DS01 and enclose a copy with the accounts. I've told client I'll be able to give him a bit of a refund into bank account, although to cover all the shenanigans to come I shall have to hold on to a reasonable amount.
Thank you dear friends for all your words of wisdom!!

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08th Dec 2017 20:59

You say the DLA is "heavy" and you state the company is owed so I take from that the director has an overdrawn directors loan that is very large.

In the case of an overdrawn DLA , a creditor for CT and an attempt at a DS01 will only result in an objection from HMRC.

Why? Imagine a company owes £10k corporation tax and there is £10k in the bank. The director removes that £10k and banks it in his private account. So you have an overdrawn £10k DLA but still the HMRC creditor. Can you see now why they would object to this? It would effectively create a loophole for directors to avoid paying CT on cessation - just draw it out, dont pay the CT and apply for strike off. Tax dodged. Aint gonna happen.

I would also pay attention to when the DLA was overdrawn. Has the director withdrawn cash very recently, knowing it was ear marked for HMRC but took it anyway?

Strike off wont be allowed and nor should it.

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to counting_crow
08th Dec 2017 21:49

I assumed that HMRC, given all the facts by me in the next few weeks of how much the remaining corporation tax will be, will agree a further arrangement with the director. They will be able to see his director's loan balance at that point. I had assumed that would mean he wouldn't get away without paying over the CT even if the company was struck off.
From what you are saying, I am wrong about this and it would be better not to do anything with companies house. So thank you for making this point and I will accept your advice.

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