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Sole Trader Tax debt

Complicated and I am not sure I can advise ATM

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Need to get my head around this before I can either form an opinion as to give general advice or refer on to someone else (latter more likely). Neither Plan A or Plan B is mine although plan A had entered my head.

Sole Trader A has a VAT, PAYE and Machines Game Duty Debt totalling circa £12K. The VAT debt was being paid under an agreement to pay; the agreement to pay has been terminated, in my opinion on a technicality that HMRC did not advise upon at the time, but none the less it has been terminated. A control of goods order is in place for MGD (Circa £3.5K) and one will follow for the VAT and PAYE and goods will be collected to cover the debt, end of sole trader A and 5 full-time jobs down the drain. There were 31 of the 52 weeks of the TPP still to go with no payments being missed.

Chances of getting the TTP back in place are 60:40 against so Sole Trader A has looked at ways of raising finance and cannot do it in time or in a conventional manner.

Sole Trader B pops along and offers to help. Sole Trader B is a relative (hence the motivation), is not VAT registered and is asset rich but cash poor.

Plan A ... Sole Trader B has offered to put in place a personal guarantee against the current and future tax debts if the TTP agreement can be reinstated for the 31 weeks. This would be covered by house and pensions, which easily cover the current and any potential future debt by a very large multiple.

Plan B ... Really do not like this ... Sole Trader A and B form a partnership and basically buy time as the taxes are now in a partnership and not a sole trader name, former Sole Trader B will have to charge VAT (B2B so no problem) and former Sole trader will raise finance against assets in a 3-month window and so any TPP arrangement would be 3 months and not 31 weeks.

Now the questions: Plan A is a personal guarantee likely get the TTP arrangement back in place; Plan B is this just stupid and does it even stand a chance of working?

Plan C has just popped into my head ... Personal Guarantee in place while B raises the cash.

Any opinions welcome good or bad I am clutching at straws today before I have to make phone calls.

Replies (5)

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By Roland195
14th Jan 2020 15:55

Plan D - Is there any sort of business that it worth the effort of trying to save here? I have come across precious few businesses subject to MGD that are currently profit making and hugely unlikely for them to be able to continue.

I'd be very careful here because the line where you are giving insolvency advice rather than general business is hurtling by.

Thanks (1)
By bernard michael
14th Jan 2020 16:19

Have they tried offering guarantees to the bank ?
Have they thought about an IVA. Need to see an IP ASAP ??
What trade is he in ?
How was he paying PAYE & MGD ?
Did HMRC give any reason for cancelling the agreement eg other taxes were outstanding
The above will enable more meaningful answers to be given

Thanks (1)
By Richard Grant
14th Jan 2020 18:22

What are the future projections for this business (accurate ones)? Discount them hard and then take a view.
Plan E is look at the above and if it doesn't look like a lottery win walk away. They got into a mess in the first place what make you think they can get out? The first loss is generally the smallest and at least there are no personal guarantees in place.

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By WhichTyler
14th Jan 2020 19:55

On the face of it they are trading while insolvent so consulting an IP is high on the list

And if they think there is a business worth saving then borrowing longer term against a sensible business plan makes sense too

But onwe way or another they should stop borrowing from taxpayers...

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Lisa Thomas
By Insolvency Practitioner
15th Jan 2020 09:59

Very concerned that B is offering to give PG for an insolvent business and at risk of losing own home in the process.

A should be taking advice from an IP, if they haven't already.

HMRC might want to see a formal IVA proposal franked by an IP but given TTP already rejected may still be minded to reject any IVA proposal.

It is possible A can still continue to trade whilst Bankrupt with the O.R's permission, depends on type of trade and reason for insolvency etc.

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