New client referred by an ISP. Company struck off for not filing accounts. Bank account frozen with £40k in it. No salary reported or dividends declared. About £70k cash withdrawn by sole director over 3 years. No VAT or CT600 returns ever filed. Only standard reminders/penalties from HMRC so far. No threat YET of them restoring the company, forcing liquidation and demanding re-payment of DLA to cover tax debts. Company ceased trading due to public sector IR35 rules. Director now works through an umbrella.
1) Restore company by court order to avoid late filing penalties and unfreeze bank account.
2) Quantify loan a/c and calculate monthly salary required to offset drawings.
3) Calculate VAT, PAYE and CT bills.
4) Submit VAT/CT returns and do Earlier Year Updates for payroll.
5) Pay tax bills out of the remaining company funds.
6) Begin strike-off process with DS01.
7) Send copy to HMRC, tell them the whole story and suggest they write off the balance.
I estimate total tax bills of £53k and available funds (after paying £7k fees) of £33k. Tax shortfall = £20k + penalties & interest. Hence, insufficient funds to pay both VAT and PAYE in full. Corporation tax can go to the back of the queue as least likely to be debt transferred but is only about £5k anyway after deducting salary and employer NI.
HMRC could transfer VAT or PAYE debts to director citing neglect (failure to file VAT returns on time) and Regulation 72 (taking salary knowing the company cannot afford the PAYE). This has echoes with the 2010 Williams case where Reg 72 was upheld, although we could argue he thought of his drawings as salary and the company could have paid the PAYE at the time. Wouldn't like to rely on that as a defence though and would prefer to avoid a Reg 72 direction. Hence, minded to pay the PAYE in preference to VAT.
However, could be out of the frying pan into the fire if HMRC chase him for the unpaid VAT instead. How likely is this in practice? Do they only do this where there is evidence of fraud as opposed to head-in-the-sand neglect? If push comes to shove, is he more likely to survive a PAYE case or a VAT one?