Is my limited company insolvent?

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Hi, new here.

I own a  micro business that's been meandering along for almost 10 years. I accept I should know the answer to this, but I've forgotten.

  • The company has fixed assets of 100
  • Total assets less current liabilities 100
  • Creditors: amounts falling due after more than one year (£441,378)
  • Total net assets (liabilities) (£441,278)
  • Capital and reserves (£441,278)
  • The company has no external creditors (doesn't owe any external debt, no outstanding invoices) and has never invoiced anything. I've been creating intellectual property, but no value has been shown in the accounts yet (there is value there).

Unfortunately, following health issues I'm having memory problems, and I'm trying to figure out a couple of basics:

1) I need to understand whether my company could be viewed as being insolvent.

2) I think that the £441,278 liability is primarily made up of unpaid salary to me. Given the figures above, is this feasible, even if it's not the best way to report this?

Thanks for any help or input.

FB

Replies (20)

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By johngroganjga
25th Mar 2024 09:27

On the figures you quote, yes your company is technically insolvent. That is just the state where a company's liabilities exceed the book value of its assets. But as you are the only creditor it is not particularly a problem.

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By FingerBob
25th Mar 2024 09:37

Hi John,

Thanks very much for your reply. That's what I was beginning to wonder - that it's technically insolvent. Taking the intellectual property into account (which hasn't been reported via the accounts) would increase the assets and reverse the issue.

Thanks very much again!

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By Paul Crowley
25th Mar 2024 09:39

Best to discuss with your accountant.
£440K of unpaid salary suggests R&D claims.

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By FingerBob
25th Mar 2024 09:46

Hi Paul,

Thanks for your reply and for the R&D thought.

I should know this stuff, and so I'm just trying to get my head around the basics prior to speaking to my accountants.

Thanks again!

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RLI
By lionofludesch
25th Mar 2024 11:02

If the creditor is not demanding payment, then it's difficult to say that the company is unable to meet its debts when due as there is no due date for the debt.

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Replying to lionofludesch:
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By FingerBob
25th Mar 2024 11:17

That's a really good point @lionofludesch - so what you're saying is that any insolvency event is technically in the future, meaning that at this moment in time the company isn't insolvent.

In reality, the intellectual property outweighs the liability but as that's not shown in the accounts at this stage, I've just been pondering the insolvency issue.

Thanks very much for your reply!

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Replying to FingerBob:
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By tom123
25th Mar 2024 12:14

If I recall, (and it's not my day to day experience), internally created IP will never appear on the balance sheet of the company that created it.

I may - of course - have got that totally wrong..

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By FingerBob
25th Mar 2024 12:34

Hi Tom, thanks for this. It looks like it's quite a complicated issue - so probably not too surprising that I haven't got my head around it yet.

Thanks again for your response!

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Replying to FingerBob:
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By DKB-Sheffield
25th Mar 2024 13:00

FingerBob

It is complex... and may be possible to recognise an intangible - depending on the standard, nature, separability, and whether it can be accurately valued.

Internally generated Goodwill is a no-no as it would fail at least one of the tests. The development phase of R&D may meet the criteria. It's not just identifying the cost, it's realising impairment!

All of the above is further complicated by the reporting standards. FRS105, FRS102, and IFRS all require different treatment... ranging from the inability to recognise an asset through to the ability to recognise in certain circumstances.

That is just a summary of the potential balance sheet treatment! P&L recognition, and potential tax deductibility varies significantly - far too many scenarios to go through without knowledge of the business!

FWIW, having spent nigh on £0.5M on IP, I'd suggest visting an adviser or advisers (accounts, tax, legal) sooner rather than later. It's unlikely to be of benefit to you if you visit them with partial information garnered from a public forum. Take advice, answer their questions, then ask them your questions. It's somewhat counterproductive to pre-empt their questions.

As for your question... your business seems to be in negative equity (rightly, or wrongly). However, whilst ever you are the only creditor... the risk is somewhat slight IMO.

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Replying to DKB-Sheffield:
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By tom123
25th Mar 2024 13:19

I knew there was something (goodwill) you couldn't recognise. Thanks for the clarification.

As DKB says - and my answer shows - it is unlikely to be of benefit relying on a public forum..

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Replying to DKB-Sheffield:
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By FingerBob
25th Mar 2024 14:15

Hi DKB, thanks for your detailed response. Lots to consider there - I agree it's probably going to require specialist input. I'm not trying to circumvent that here; more getting a grasp of the fundamentals.

Thanks again for your thoughts!

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paddle steamer
By DJKL
25th Mar 2024 13:22

Has the salary been RTI reported over the years and PAYE/NI paid on same or is it mere accruals?

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Replying to DJKL:
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By DKB-Sheffield
25th Mar 2024 13:29

DJKL wrote:

Has the salary been RTI reported over the years and PAYE/NI paid on same or is it mere accruals?

I thought the same... but, didn't want to end up down that particular rabbit hole (or holes)!

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Replying to DJKL:
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By FingerBob
25th Mar 2024 14:17

Hi DJKL - thanks for your thoughts/question.

No PAYE/NI paid, it's merely accruals.

Thanks again!

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Replying to FingerBob:
paddle steamer
By DJKL
25th Mar 2024 15:46

Then accounts likely incorrect re CT.

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Replying to DJKL:
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By Postingcomments
25th Mar 2024 14:34

For a director, isn't one of the PAYE taxpoints when an entry is made in the accounts? Such as an accrual?

Then, for CT purposes, if the salary hasn't been paid (eg by booking it to the DLA as opposed to letting it continue to sit as an accrual) within 9 months of the end of the period, it is disallowable. If the reason for the salaries was R&D tax credits, this might be relevant.

Conclusion - Definitely see someone about all this.

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Replying to Postingcomments:
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By FingerBob
25th Mar 2024 14:42

HI Postingcomments, thanks for your comments and conclusion. That's beginning to sound as though there's a problem with just accruing salaries - so I'll need to find out more about that.

Thank you again!

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Replying to FingerBob:
RLI
By lionofludesch
25th Mar 2024 14:50

FingerBob wrote:

HI Postingcomments, thanks for your comments and conclusion. That's beginning to sound as though there's a problem with just accruing salaries - so I'll need to find out more about that.

Thank you again!

The problem will come when the salary's paid and you find the PAYE bill is a lot more than you expected.

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Replying to Postingcomments:
RLI
By lionofludesch
25th Mar 2024 14:49

Postingcomments wrote:

For a director, isn't one of the PAYE taxpoints when an entry is made in the accounts? Such as an accrual?

Then, for CT purposes, if the salary hasn't been paid (eg by booking it to the DLA as opposed to letting it continue to sit as an accrual) within 9 months of the end of the period, it is disallowable. If the reason for the salaries was R&D tax credits, this might be relevant.

Conclusion - Definitely see someone about all this.

If it's a PAYE tax point, how can it be disallowable after 9 months? The PAYE will have been paid.

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Replying to lionofludesch:
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By Postingcomments
25th Mar 2024 14:59

As I say, for a director, the PAYE taxpoint can be when an entry (eg an accrual) is made in the books.

This is a completely separate matter than the CT rules re claiming CT relief. The CT rules demand that payment has been made. This could be by cash/bank tfr or by booking to the DLA.

So, even if PAYE has been triggered (and paid) that doesn't mean that the CT rules have automatically been met.

In my opinion and based on my recollections of these rules etc.

Either way, the OP definitely does need to go and see someone about all this, especially given the amounts involved.

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