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What to pay - PAYE or VAT?

Insolvent company cannot afford to pay both

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 About £70k cash withdrawn by sole director over 3 years.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.

Proposed solution:-

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?

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By cfield
to mrme89
20th Oct 2017 16:50

Yes, you've misunderstood everything!

The tax bills won't go away. Nor will the debt collectors. You are not off the hook just by letting your company get struck off. HMRC do have counter-measures.

No re-writing history. Just catching up with payroll work.
How do you know it wasn't salary? What do you think the director saw it as?

Seize trading? That's a good one. Do you mean cease trading? The company already has ceased trading. That doesn't mean company admin must cease too.

Recognising outstanding PAYE obligations is not a new debt. You're confusing this with wrongful trading.

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By mrme89
to cfield
20th Oct 2017 16:58

The tax bills went away the moment that the company died.

They will keep chasing, but they will go away eventually. You just keep repeating that the company is dissolved.

There's no money in that for you though.

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20th Oct 2017 15:40

So in summary
The director had no accountant either for him or the company for the 3 years of trading
No accounts were prepared for either HMRC or Cos House
He's ignored correspondence form HMRC & Cos House
He's robbed the company of all it's cash and not declared his taxable income
He's robbed the taxpayers of PAYE Corporation Tax and VAT
Why has he decided to sort the above out - some sort of Damascene revelation?

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By cfield
to bernard michael
20th Oct 2017 16:00

Correct on the first 3 lines. Totally wrong on the next 3.

Firstly, he hasn't taken all the cash out of the company. There is £40k left which he accepts will be used to pay tax. Either the VAT or the PAYE will be paid in full.

Secondly, he hasn't robbed anyone. That is a really serious accusation. There is no evidence of fraud. Gross incompetence maybe but nothing criminal. He just got in way over his head and it's only just dawned on him what the situation is. He's had sleepless nights over it.

He didn't plan to leave the company £20k short on its tax bills, any more than the boss of Monarch Airlines let his company slide into insolvency, but having done so, he deserves the protection of limited liability same as everyone else.

Plenty of people really do leave their creditors high and dry on purpose though and then start up new companies to do the same again and again. You should reserve your ire for them.

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to cfield
23rd Oct 2017 11:01

cfield wrote:

There is no evidence of fraud.

Is that your call to make? Should you not instead file a report and let the authorities decide?

I can see only two possibilities. Your man may have not registered his company for VAT (after all, he's taken none of his or its other tax obligations remotely seriously). Nevertheless, you talk about VAT as if it has been charged.

Or, he did register the company for VAT (showing some knowledge) then legitimately collected VAT (showing some more knowledge), then not accounted for it. The demonstration of knowledge perhaps makes the defence of incompetence harder to sustain - but I go back to my first point: is that a matter that you or I should be judging?

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20th Oct 2017 16:05

....so he has ignored countless letters from HMRC & Cos House including VAT forms. He's raised VAT invoices and kept the VAT. You are seriously expecting us to believe he's just a poor individual with his head in the sand.
You haven't told us what industry he was in. Would you care to enlighten us?

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By cfield
to bernard michael
20th Oct 2017 16:31

Well in that case he's fooled the IP too.

If he was a crook, why would he have gone to the IP in the first place? Why isn't he doing his best to keep all this quiet? Why would he have allowed the bank account to be frozen with £40k in it?

No I won't tell you what industry he's in. It might enable colleagues to identify him.

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By ShayaG
to cfield
24th Oct 2017 14:23

I think it's a reasonable inference to find the answer to the first two questions "why would he have gone to the IP in the first place?" and "Why isn't he doing his best to keep all this quiet?" in the last question "Why would he have allowed the bank account to be frozen with £40k in it?"

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20th Oct 2017 16:16

Who approached whom? Why?

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By cfield
to Tax Dragon
20th Oct 2017 16:34

Tax Dragon wrote:

Who approached whom? Why?

Enough. I shared this with the Aweb community for advice from people who have experience of this kind of situation, not for an interrogation by the likes of you.

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to cfield
20th Oct 2017 16:41

Interrogation?

I asked two simple questions. You have come back with a note of surprise and fear in your voice.

Fear and surprise. Surprise and fear.

And smart red uniforms.

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By Matrix
20th Oct 2017 17:05

Thanks for the Friday fun.

You say "The tax bills won't go away. Nor will the debt collectors."

HMRC don't currently know about them which is why they didn't object to the strike off.

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By cfield
to Matrix
20th Oct 2017 17:20

They did object automatically as always. It was the second attempt they failed to object to, as always.

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20th Oct 2017 17:12

Without wanting to trawl through all the above, this seems like a simple case of someone wanting something classed as a salary rather than a DLA for a bust company (for the usual reasons), in which case there has been stuff on this website before about that and it is far from being crooked to want to argue that (after all HMRC, are keen to argue a salary when it suits them aren't they?). It's a simple application of the relevant facts to the relevant law. See a similar situation here:

http://financeandtax.decisions.tribunals.gov.uk//judgmentfiles/j9262/TC0...

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By cfield
to Justin Bryant
20th Oct 2017 20:23

At last - someone sensible. Where have you been Justin? I've been battling this lot all day on my own.

I've been looking for that West case but couldn't recall the name. Just read it through and overall it gives cause for encouragement, although the dissenting judgement is worrying, especially as this is only a First Tier decision.

The major difference in that case was the timing of the salary. West previously took low salary/high dividend and only requested the final salary at the end to clear the DLA.

With my client, there were no dividends (although there were sufficient profits to declare them) and the director contends that the cash he took was in lieu of salary. It's just that he didn't bother running a payroll. My argument is that consequently this is a catching-up exercise and we are really only recognising PAYE liabilities which have existed all along. The DLA was not meant to overdrawn.

This is pertinent to Regulation 86 on NI contributions. West got away with "wilful failure to pay" on the grounds it was impossible to pay anyway by the time the NI was incurred.

In the case I'm dealing with, there was plenty of cash at the time he took his salary to pay NI. It's just that he didn't bother recording it as a liability. Hence there might indeed be wilful failure, given that the operative word for NI is "pay" not "deduct".

Even Regulation 72 might be an issue, for there was no evidence at the time of tax being deducted, such as P60s, payslips or accounts. Hence, there might be a wilful failure to deduct tax too.

None of this will be a problem though if the DLA can be cleared by salary, whatever its timing, and the PAYE is settled in full out of the remaining £40k. It would only be an issue if we paid all the VAT instead.

Which brings me back to my original question (which no one has even attempted to answer yet). Is it better to pay the VAT or the PAYE if we want to avoid a debt transfer?

If we rely on West, it looks like Reg 72 is not a threat so it is safe to pay the VAT. We could even pay the NI but not the PAYE tax to avoid falling foul of Reg 86. Would have to do that in a letter I suppose.

Any thoughts?

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to cfield
23rd Oct 2017 10:58

Since a company has limited liability and (ignoring IA 1986) its tax liabilities can only be transferred to the directors in certain limited situations (PAYE & VAT deliberate failures include), you should perhaps check with an IP as to which would be the lesser evil so to speak, given the facts. I cannot really say more than that, as I would need to fully understand the facts, which would be a bit time consuming. Good luck!

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By ShayaG
to Justin Bryant
24th Oct 2017 14:24

To ignore the stipulations of insolvency act 1986 when dealing with the affairs of an insolvent company would be very unwise.

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By SXGuy
23rd Oct 2017 11:03

Just a thought. If hmrc were going to push for liquidation, would they have not done this by blocking the strike off in the first place? Seems to me unlikely they would move to reinstate the company to chase it for debts. I don't know any debt collector in the land including high court balifs who can chase a director for debts to a company that is dissolved, it would also be very unlikely a writ could be issued to one either.

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By cfield
to SXGuy
23rd Oct 2017 12:06

Actually they did block the strike-off but only by way of the usual automatic system knee-jerk response. They didn't object to the 2nd ad as that would have needed a human being to get involved.

The debt collectors may indeed just go away and so might HMRC, oblivious to the debts they're owed, but should we really take that chance? As I say, £70k is at risk here and it might be used to pay massive penalties that would be otherwise written off.

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to cfield
23rd Oct 2017 12:31

Am I (and are others) all wrong to believe that, if your man is as innocent as you say, then he is protected from all the woes you describe by that innocence? Do those woes not require an element of wilful wrongdoing before they can come to pass?

If I'm wrong, just tell me and I'll shut up. Until then, what I see is that you are arguing both that he is guilty enough to be at risk of £70k worth of woe and that he is innocent enough that - if he pays you enough - you can make that woe go away.

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By cfield
to Tax Dragon
23rd Oct 2017 12:48

Tax Dragon wrote:

If I'm wrong, just tell me and I'll shut up.

Yes, you are wrong. I now hold you to your promise. Please shut up.

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23rd Oct 2017 11:18

I remember many years ago during my brief stint in practice a situation where small company went under and the directors had to account for drawings that had not been subject to PAYE and did not qualify as dividends, leaving overdrawn DLA's. There was no cash left in the business and it was wound up. Inland Revenue, as it was then, pursued the directors personally for PAYE and NI on their drawings.

I don't know how HMRC respond to this type of situation these days. But you can certainly see how converting the DLA to PAYE in this case and using the £40K funds to pay the PAYE in favour of VAT can be a potential benefit to the director. Just saying.

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By cfield
to Jackie0802
23rd Oct 2017 11:58

Thanks Jackie. Yes, that is exactly the outcome we wish to avoid. That's why we are taking the matter into our own hands rather than adopting the "que sera sera" attitude that some on here advocate.

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to cfield
23rd Oct 2017 14:34

PAYE, CT or VAT, the treasury ends up with the same amount either way and gets shafted for the balance. The only thing about that, and perhaps the reason that people get a bit arsey, is that he walks away with £70K tax free after failing to adhere to the very basic requirements of running a business. I bet he is kicking himself for not getting in before the bank account was frozen, in for a penny in for a pound eh?

When looking at the issue of preference, does HMRC speak as one voice or do they split into their little groups and go into battle? Could be the good folk in excise & CT won't like your remedy.

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23rd Oct 2017 13:53

If the status quo remains, what would end up happening to the £40k currently in the bank account?

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to bagpuss1968
23rd Oct 2017 13:58

....assuming that HMRC didn't try to re-instate the Company and pursue any further?

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to bagpuss1968
23rd Oct 2017 14:06

bagpuss1968 wrote:

If the status quo remains, what would end up happening to the £40k currently in the bank account?

It belongs to Liz, or more correctly, the Treasury. Ergo, HMRC have only technically lost 13k, not 53k. What the OP is looking to do is to increase that debt to 20k, wipe out the DLA, pick up 7k for his troubles, then fold the Company again.

It's my guess that the client has suddenly found his bank account frozen and got miffed he's "lost" 40k. That's after ignoring months and months of letters and not paying a penny in tax, paye or VAT.

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to legerman
23rd Oct 2017 14:37

So, from a purely financial viewpoint, "in the round", would I be right in thinking that the client/client's company are;

1) better off; if HMRC can't be bothered to re-instate the company to pursue DLA etc. further; but

2) worse off; if they currently do nothing but HMRC then decide to pursue, re-instate the company, manage to establish DLA and are also able to come after the client on a personal level; but

3) somewhere in the middle of 1 & 2 if the OP's course of action is followed (or if HMRC decide to act but are unsuccessful in establishing DLA etc., but can get back the £40k from the company in PAYE/VAT (or £33k if OPs fees can be refunded to the client))?

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to bagpuss1968
23rd Oct 2017 17:46

bagpuss1968 wrote:

So, from a purely financial viewpoint, "in the round", would I be right in thinking that the client/client's company are;

1. Keeping the status quo means the client has effectively paid 40k towards the outstanding amounts.

2. There is the remote danger that HMRC could restore the Company, and one that would definitely ensure the client is better off in regards to the DLA that is currently outstanding. (assuming that HMRC treats the dividends as PAYE)

BUT HMRC doesn't know there's an outstanding DLA, so what possible reason would they have to restore the Company?

3. I've previously mentioned to the OP that he must be paid pro-rata to the outstanding debts if the 7k is included in the accounts. If the client is not claiming the 7k through his business then he is automatically 7k worse off in cash terms by restoring the Company.

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By ShayaG
to bagpuss1968
24th Oct 2017 14:26

Bank will pay to treasury solicitor, after a long delay.

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By ShayaG
23rd Oct 2017 16:09

If you resurrect the Company, which, owing to its past undeclared VAT and payroll liabilities exceeding its sole £40k asset, the director know to be insolvent, and then carry out any transactions, the director appears to me to be trading while insolvent. It seems to me that there is nothing lawful that the director or you can do at this stage to mitigate this situation were the Co to be resurrected other than appoint the IP and pray. Apart from injecting circa £30k, which would be a noble philanthropic gesture and, by the sound of things, completely not your director's intentions.

My firm advice is to leave it. The £40k is gone. The Director appears to have got off lightly - it represents less than his tax liability had he been acting responsibly. Let sleeping dogs lie.

As for the £7k, my firm advice is to give that one back as well.

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By cfield
to ShayaG
23rd Oct 2017 17:39

Trouble is the payroll could be seen as a paper exercise if it's all done retrospectively and no PAYE is accounted for. Even if the risk of an overdrawn DLA is avoided, there is the possibility of a s72/86 debt transfer. Hence, he needs to pay the PAYE.

However, to do this, he needs the £40k back again, which means restoring the company and unfreezing the bank account. Companies House would charge £3k in late filing penalties and the company has ceased to trade anyway, so it has to be by court order.

It's pretty much standard advice in this kind of situation to clear the DLA with salary, especially if that's what it was meant to be all along, so I'm surprised at the level of opposition from people on here.

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By mrme89
to cfield
23rd Oct 2017 18:02

Are you honestly happy to say that a bloke that you describe as having his head in the said, and has ignored his duties as director made a conscious decision to pay himself a salary but just forgot to get around to doing the necessary paperwork?
If that’s honestly the case, were these withdrawals, consistent, regular amounts just like you’d expect and in line with the salary you propose to now declare?

I don’t think that you are fooling anyone on here.

Pass me your Tardis, I’m outta here.

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to cfield
23rd Oct 2017 18:45

I don't agree that it's standard advice. It's an exercise to re-write history to avoid the guy paying tax and NI on money that he just treated as his own at the expense of his creditors. I would wager that the £40k is only still there because no one can get their hands on it.

If this muppet had spent money on an accountant when it mattered, ie: before he realised that he can't just help himself to money from the company bank accounts without accounting for it properly, he may not be in this mess.

The £7K you are charging is a big proportion of the funds available, and it's money being spent on saving his sorry [***], otherwise the entire £40k would end up with the treasury in addition to the tax and NI he SHOULD have paid if HMCE decide to go after him personally.

If you had been his accountant before he crashed and burned I would understand you going to extreme lengths to advise and protect a client, but with all due respect, you're coming across a bit like a claim management firm who promise to get 98% of your debts written off, for a fee.

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By cfield
to Jackie0802
23rd Oct 2017 23:54

Jackie0802 wrote:

I don't agree that it's standard advice. It's an exercise to re-write history to avoid the guy paying tax and NI on money that he just treated as his own at the expense of his creditors.

It's not re-writing history any more than HMRC re-write history when they go back 6 years for PAYE on payments to freelancers or IR35 deemed payments. If the company was still trading or cash rich, the latter is exactly what they would have done in this case. What's good for the goose is good for the gander.

It is not automatically a loan just because no payroll or dividend records have been kept. If a profitable company pays cash to its director and no loan agreement exists, it is more likely to be salary.

Rebecca Benneyworth explained that to us when RTI first came in. That's why I got all my directors who weren't in credit to sign loan agreements, so they didn't get hit with penalties for not making FPS submissions every time they took out cash.

If a judge was looking at these payments objectively and impartially and asked to rule if they constituted salary, dividends or loans, he would weigh up all the evidence and come to the same conclusion. The director thought he was paying himself wages and had no intention of paying the money back, so that's what it must be. The fact he didn't operate a payroll for himself and do all the right things is neither here not there.

If a payroll had existed and the payments exceeded it, then I agree, it would be re-writing history to re-classify them as salary. But you can't re-classify something that hasn't officially been classified at all yet.

It would also, in those circumstances, be a bit dodgy to clear the DLA with salary knowing the creditors would be left short. A good IP would probably seek to reverse that.

If that was the situation here, my advice would have been quite different. I would have told him to restrict salary so that cash + overdrawn DLA was sufficient to pay all the taxes. Not the penalties mind, just the taxes. Then close the company.

Either that or find a job in the private sector, carry on trading and pay all the taxes plus penalties as and when he could afford it.

We must be careful here not to allow moral outrage at unpaid taxes or disbelief at someone's ineptitude to sway our judgement and insist they pay a pound of flesh. We are supposed to act in the best interests of our clients, so far as the law permits. Some people on here seem to have forgotten that.

If I thought he was a crook, I wouldn't be helping him. In my experience though, crooks don't usually run to the nearest IP when their companies go bust, knowing full well that they could be taken to the cleaners.

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By cfield
to Jackie0802
23rd Oct 2017 23:57

Jackie0802 wrote:

I don't agree that it's standard advice. It's an exercise to re-write history to avoid the guy paying tax and NI on money that he just treated as his own at the expense of his creditors.

He will be paying tax and NI though. It's the VAT and corporation tax that won't be fully paid. And the penalties of course.

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By ShayaG
to cfield
24th Oct 2017 13:08

I don't think you read what I wrote.

Were it to be resurrected, the company would immediately be insolvent with no prospect of paying its debts. If

As I see it the Director cannot lawfully process the payroll. The decision to process the payroll is the right thing to do is for the Administrator to decide. The only lawful decision the Director can make is to appoint an IP. The Director incurring further costs on behalf of the Company by appointing you to resurrect the company and deal with its filings is unlawful trading.

I can see why your client is, as a result of poor past decisions, mildly exposed. Tough. He cannot rewrite history - what is done is done. Filing the payroll will not resolve the legal question of whether the drawings were intended as a salary (I agree they probably were, but that the director had no intention of operating a PAYE scheme and taxing it and therefore is exposed).

When in a hole stop digging.

I say mildly exposed because 96 times out of a hundred, with no red flags waving, HMRC will let this one go.

Resurrecting the company then filing red flag retrospective returns in my opinion vastly increase the risk that HMRC will aggressively pursue the Director through the insolvency process for far more than £40k. The £40k is fools gold.

The overwhelming professional opinion of your peers is to leave it.

The lure of the £40k is apparently too much for the client and both the professionals acting in this case to withstand. It's this which is attracting ire from other commentators.

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By cfield
to ShayaG
24th Oct 2017 14:19

ShayaG wrote:

The Director incurring further costs on behalf of the Company by appointing you to resurrect the company and deal with its filings is unlawful trading.

But he's paying these fees out of his own pocket. There was some thought given to reimbursement out of the £40k and the IP seemed happy with that, but it does look a bit dodgy if it increases the unpaid tax debts so may not happen. Having said that, they are less than an IP would charge, so the creditor would end up getting more money this way.

ShayaG wrote:

the director had no intention of operating a PAYE scheme and taxing it and therefore is exposed).

Actually there is a PAYE scheme. I don't know who set it up (sometimes HMRC do this themselves) but they have been sending PAYE bills for specified charges + interest. For those not familiar with this term, specified charges are system-created PAYE assessments if you don't file a monthly FPS or nil EPS and disappear once those RTI submissions have been made.

ShayaG wrote:

When in a hole stop digging.

My spade is doing overtime, but it's not digging a hole. It's building a base to make the best of a bad situation.

ShayaG wrote:

I say mildly exposed because 96 times out of a hundred, with no red flags waving, HMRC will let this one go.

Where do you get those statistics from? How do you know they will let it go, when an enquiry will quickly uncover receipts of approximately £150k with no tax or VAT paid whatsoever.

ShayaG wrote:

Resurrecting the company then filing red flag retrospective returns in my opinion vastly increase the risk that HMRC will aggressively pursue the Director

They're not retrospective any more than the VAT returns are retrospective. They're just late. Given that there will be no overdrawn DLA and no fraud, how will they pursue the director?

ShayaG wrote:

The overwhelming professional opinion of your peers is to leave it.

With all due respect to my peers, most of them I've never heard of before and a lot of them seem to be thinking in ways that do not suggest they are very knowledgeable on this subject. Only a couple of AWeb "big beasts" have responded to this post. One of them we haven't heard from since he corrected a misunderstanding right at the start. The other one seems to agree with me.

I am not swayed by "the court of public opinion" which one poster suggests trumps the law of the land. I am swayed by reasoned arguments and logic based on established legal principles and precedents from people who know what they're talking about. I am not convinced that many on this thread do. They seem to be influenced more by politics, morality and emotions, as that poster correctly deduced.

ShaylaG wrote:

The lure of the £40k is apparently too much for the client and both the professionals acting in this case to withstand. It's this which is attracting ire from other commentators.

The client is not going to see any of that £40k. As for the IP, he has backtracked a bit since the shocking realisation dawned that he won't get a fee out of this. He agrees with the basic plan but suggests a CVL to wind up the company rather than striking it off. I reckon HMRC would prefer to have the whole £40k to themselves.

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By ShayaG
to cfield
24th Oct 2017 14:38

"But he's paying these fees out of his own pocket. "

No. He's not. The double entry in the company's books is to debit professional expenses, credit DLA. This is factually a company rather than personal expense, regardless of who is paying, unless the director indemnifies the company in writing. Which ain't gonna happen, am I right?

"the director had no intention of operating a PAYE scheme and taxing it"

The way you say it makes it sound like the director was wise enough to set up a PAYE scheme but nevertheles neglected to pay himself through it helps his situation one little bit.

"I say mildly exposed because 96 times out of a hundred, with no red flags waving, HMRC will let this one go."

You asked for rough estimates in your original post. ("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?")

"The client is not going to see any of that £40k."

Does the client know this???

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23rd Oct 2017 21:13

Can you provide some figures please? if the company had £40k in the bank and he had withdrawn £70k, if he was caught by IR35 he couldn't have much in the way of expenses. So turnover c £120k.If the CT bill is £5k, that indicates a profit of c£25k. Turnover say 120K, VAT FRS say 12k ,expenses 10k leaves 73k for salary and NI. Over 3 years. I can't see how you get VAT and tax liabilities of 53k, even at higher rates. Looks like he would still have an overdrawn directors loan account and that plus the cash would repay all the tax etc due?

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By cfield
to davidlchapman
23rd Oct 2017 23:08

davidlchapman wrote:

Can you provide some figures please?

Sorry no, I haven't even done the accounts yet. They were literally back of an envelope calculations.

The exact figures weren't that relevant to my question, which if we cast our minds back a bit, was whether it is better to pay the VAT or the PAYE. Amidst this storm of finger-wagging, nobody has even attempted to answer that yet.

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to cfield
24th Oct 2017 09:27

cfield wrote:

my question... was whether it is better to pay the VAT or the PAYE.

Even if we accept the rest of your logic (i.e. that the director doesn't owe the company anything), isn't it up to the creditors of the insolvent co to decide how to carve up the remaining assets?

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By cfield
to WhichTyler
24th Oct 2017 09:39

WhichTyler wrote:

Even if we accept the rest of your logic (i.e. that the director doesn't owe the company anything), isn't it up to the creditors of the insolvent co to decide how to carve up the remaining assets?

No I wouldn't say so. Does an IP go through a creditor's list of outstanding invoices and allocate an amount to each item? No, they just get a rate in the pound on their total claim.

Why should HMRC get to decide which of their tax debts are prioritised? Is there anything in law that requires that or is this just more "high horse" thinking?

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to cfield
24th Oct 2017 11:41

Sorry for not being more precise: doesn't it go like this:

1 You reinstate, submit accounts, payroll etc, draw up balance sheet showing
Assets Bank £40 (or possible £33k)
Liabilities PAYE £X and VAT £Y (where X+Y>>£40k)

2. Realise company is insolvent and appoint IP to liquidate. You seem to want to step into the IPs shoes to run the liquidation to bring the bs to zero?

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By cfield
to WhichTyler
24th Oct 2017 12:16

That's about the size of it I suppose. But what's the point of appointing an IP if there's only only creditor? All he'll do is take a large chunk out of the bank balance and pay the rest to HMRC.

If you reach an agreement with your creditor, you don't need an IP. They can always appoint the Official Receiver if they want, but what would be the point?

They also have the debt transfer rules, but these are only used in exceptional circumstances, which shouldn't be the case here.

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By ShayaG
to cfield
24th Oct 2017 13:52

Protection from https://en.wikipedia.org/wiki/Wrongful_trading is the point of appointing an IP. Which may even draw you into its scope as a shadow director.

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to cfield
24th Oct 2017 13:57

So second go round:
1. You reinstate, submit accounts, payroll etc, draw up balance sheet showing
Assets Bank £40 (or possible £33k)
Liabilities PAYE £X and VAT £Y (where X+Y>>£40k)

2. You (or client) approach HMRC to say 'We owe you £X+Y but only have £33k, please will you accept this in full and final settlement of all debts to avoid the cost of an IP'

3a. HMRC say 'OK whatevs' and you and your man are off scot free

3b. HMRC say 'no way jose' and reaches for their various veil-piercing tools to pursue him personally (or at least ask for a lot more information from you and him to see if he was reckless?, negligent, intentionally evading his responsibilities etc)

Do you feel lucky?

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23rd Oct 2017 21:18

Missed the last hour whilst thinking about this. Tend to agree that the Crown has had the 40k from freezing the bank account so let sleeping dogs lie.

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By cfield
to davidlchapman
23rd Oct 2017 22:54

davidlchapman wrote:

Missed the last hour whilst thinking about this. Tend to agree that the Crown has had the 40k from freezing the bank account so let sleeping dogs lie.

Not a good idea. It might wake up and demand £70k.

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to cfield
24th Oct 2017 12:18

cfield wrote:

davidlchapman wrote:

Missed the last hour whilst thinking about this. Tend to agree that the Crown has had the 40k from freezing the bank account so let sleeping dogs lie.

Not a good idea. It might wake up and demand £70k.

But why would it? It doesn't know that it is owed any taxes, or how much.

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