A client is self-employed and has a VAT debt and now having difficulty paying his SATR and repaying grants he should not have taken.His income is over 100k and was advised to go limited a while ago as it would be more beneficial for the future. He wants to start new as a new company, the same trade and name. Could any of the debts be taken over to the limited company?
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From a VAT perspective, when you come to register NewCo for VAT, HMRC will issue a VAT number but then likely seek a security deposit based on a portion of the VAT debt in the sole trader.
Transfer of debts to another entity requires the agreement of whoever is owed the money. If your client can get HMRC to agree to transfer debts owed by an individual to a company then I will be very impressed.
Why would any sane person or organisation agree to this?
And if so then consider whether the tax issue arising
Let me think about this from HMRC's point of view....Someone with unlimited personal liability who owes me a ton of money wants to transfer the debt to an entity with limited liability....Oh yes, that sounds fine. I would readily agree to that.
I have to say that if you are asking legal questions as basic as this, then I wonder whether you should be this client's adviser. Are you sure you are not out of your depth?
It's not totally mad (except perhaps for HMRC debts of course), as this happens all the time as a novation by conduct (without any formal loan novation agreement) in s 162 incorporations.
Please can you explain how "novation by conduct" works.It's not totally mad (except perhaps for HMRC debts of course), as this happens all the time as a novation by conduct (without any formal loan novation agreement) in s 162 incorporations.
I just cannot think of what conduct of a creditor would be proof that they had accepted transfer of a liability to a new entity absent a formal agreement. Surely simply having a company start paying a personal debt is not enough.
Disappointed, but not surprised, that you once again refuse to explain something you have introduced to the debate. Since you are so confident it would work, you surely have the information to hand.Failing a Google search, any decent law library will explain all that.
But, since you insisted, I did a Google search. The only results I came up with, other than those blocked by a paywall, were about the novation happening because a new entity made payments for goods or services supplied or took over an entity that had previously supplied goods or services. Please explain what goods or services have been supplied to HMRC in respect of a personal income tax liability.
Also, based on what I could find in the search, novation by conduct is about being able to pursue the new entity, not leaving the previous entity free and clear. In all the cases I found in my search, the entity owed the money could not pursue the original contracting entity, usually because it had ceased to exist. As the individual presumably still exists, why would HMRC want to assert novation by conduct to pursue a different entity?
So, based on the research you asked me to do, I still think you are wrong. Care to explain otherwise, with sources to back up your claim?
You're missing Justin's point (made in previous threads). He's not relying on legal rigour so much as the thesis never being tested in the scenarios he's talking about because the payee always gets paid. In the examples you cite, the question of whether there has been novation by consent has arisen/is being tested because someone isn't getting paid.
Clearly, you can't offload a debt to HMRC onto a company (or anyone else for that matter), not tell HMRC, not pay HMRC and then successfully argue that HMRC had accepted the 'novation'.
I would say that in the OP someone is not getting paid, because the client is described as "having difficulty" with their SATR debt.
Perhaps it will be clearer if I read Justin's point in previous threads. Are you able to point me in the right direction?
novation is usually by entities with the same legal status: company to company. where the debt recovery possibilities are no greater or smaller than before. As a debtor I would rather pursue the man than his (worthless?) company.
I thought this post is for general info. I am a bookkeeper, not an accountant and the client going limited would be out of my depth, yes and I would not be dealing with it. I thought, however, this is general help and advice from experts and that would be no harm to ask and get professional views.Thank you.
Your profile, before you updated it, and indeed your website/business name clearly make out you are an Accountant. Now you know some of the issues, although any bookkeeper worth their salt would have been aware of some of them before, but at least its good to hear that you will be passing this on. Who advised this gem of a client to go Limited? You should just refer them to that advisor, as long as it was TMDTP and is someone suitably qualified.
£100k income and they cannot manage their responsibilities!! Crazy. One client you should be glad to ditch by the sounds of it.
This is an eye-opening response particularly as I now only know it's been Friday all day" after someone I rang at 3,30 said they would ring me back on Monday . Your response is serious food for thought.
It sounds as if the client is insolvent and should therefore take insolvency advice. perhaps an IVA could be explored if it is viable.
"A client has a VAT debt
having difficulty paying his SATR
and repaying grants he should not have taken.
His income is over 100k"
Sounds like a great client.
"A client has a VAT debt
having difficulty paying his SATR
and repaying grants he should not have taken.
His income is over 100k"
Sounds like a great client.
Probably the biggest point to consider on this crazy thread.