Insolvency

[PPaul]

We have been approached by a new client (Ltd. Co. sole director/shareholder), who has run into financial difficulties due to various reasons i.e. increased competition, increased raw material prices, higher motoring costs etc. The declining margins meant that he was unable to keep on top of statutory requirements like accountancy and payments to HMRC. The company has made losses in 2009 & 2010 and 2011 is expected to show a loss as well.

He is now trading through a new company but in order to complete his personal tax return, we need to tie up the previous company as well.

The arrears now amount to (CT/Vat/PAYE) approx £10k and previous accountant’s fee outstanding of £3k as well. Bank account is overdrawn about £10k secured against personal g/tee of the director. There are no other liabilities.

A minimum salary was paid to him for all these years; the DCA is overdrawn by about £15k. We are thinking about revising the payroll for 2011 with a commercial wage thus settling the DCA. If this is done, the DCA is expected to be in credit as he has introduced some personal funds into the company as well. Will this subject to HMRC attack?

The client cannot afford a licensed IP. Therefore is it possible for an accountancy firm like us to write to HMRC explaining the position? Alternately can the director write to HMRC? What could be the consequences? If we or the director were to write to HMRC what should be the content of the letter? Should we enclose available accounts as well? If we/director were to write to HMRC what should be the content of the letter?

Any suggestions would be very helpful

[mullet]

1. I hope that you have received some fees in advance.
2. What precisely are you trying to achieve by contacting HMRC?

[PPaul]

Thanks, Mullet for your reply.
Yes, we have received some fees in advance.
The company cannot pay the debts. We are trying to explain this to HMRC so that the director is free from any obligations/liabilities personally and he can continue trading through the new company.

[mullet]

Is this a phoenixism? HMRC (generally) don't like people starting up a new company and walking away from the old company's debts. Remember that Ltd means limited liability, not total escape from liability. If any of the PAYE debt is in respect of director's remuneration, then HMRC might chase him if they get a direction which transfers liability.

I know that this doesn't answer your questions ... but I doubt that HMRC would be happy with a simple explanation. Either the company exists or it is on the path to dissolution. HMRC deal with the former as a taxable entity and react to the latter as and when it happens.

[Incredulum]

The arrears now amount to (CT/Vat/PAYE) approx £10k and previous accountant’s fee outstanding of £3k as well. Bank account is overdrawn about £10k secured against personal g/tee of the director. There are no other liabilities.

And there is a nice juicy asset!

the DCA is overdrawn by about £15k.

So you think that you can get away with taking an insolvent company, paying 15k to the sole director and then stuffing HMRC?

Do you have PII? You'll need it...