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The worst has happened, my Ltd is going to go bust with overdrawn DL and a Corp Tax bill I can't pay

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Joined: Wed Mar 06, 2013 7:22 pm

The worst has happened, my Ltd is going to go bust with overdrawn DL and a Corp Tax bill I can't pay

Postby TheMrs » Wed Aug 02, 2017 9:16 pm

I won't bore you with the actual death of my company, other than to say it was a total shock. One minute the client was telling us we were brilliant and had work till 2019, the next week we were out as the role was being "outsourced".

We have been running with very tight cash flow for years since various oil industry cuts, but this was still unexpected.

We usually take directors loans all year then make one large dividend payment just after year end. I can't even remember why we started this but I guess it must have been, in hindsight, the time things started to go awry.

Our final accounts look horrible;

overdrawn DL of around £36,000
Corporation tax debt of around £19,000 (deadline for payment not till January 2018)

We have no savings and have signed on for JSA and CTC. We have around £50k equity in our house, although the houses either side have been for sale for over a year with no viewing so not exactly a quick fix solution (even if we wanted to sell and become homeless)

We are on a debt management scheme for our non priority debts and have mortgage arrears.

It is weirdly cathartic to put it all down in writing...

Anyway, what I'd like to ask for opinions on is this; I am assuming HMRC will rightly hold us accountable, by way of repaying the Directors Loans for the £19k corp tax. Would we also have to repay the balance of £17k or are HMRC only going to care about the amount they are due? It would be our intention to ask for time to pay the £19,000 and to hope to sell the house or even by some miracle find another contract in the meantime.

However my interest here is in the balance of the DL, of around £17k. The business will have no other creditors so do we write off the balance of the loan and then in due course pay income tax on the benefit? Anything else?

With thanks and please don't judge, it really could happen to anyone in the oil industry these days. Hard times for all.

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Joined: Wed Aug 06, 2008 4:01 pm

Re: The worst has happened, my Ltd is going to go bust with overdrawn DL and a Corp Tax bill I can't pay

Postby robbob » Thu Aug 03, 2017 9:22 am

Hello TheMrs

I have no answers just some comments.

This sounds more like a legal situation that accountancy situation -so i would take advise as such, what are you doing as directors to repay your debts to the business so that the business can settle its liabilities? - this is probably the most important question - it sound like you have a route available but this would involve selling your house but that's an extreme outcome and may not help if you have other debts (note i am not saying you could be forced to go down that route). It's a very fraught and tricky question - being frank often the authorities don't ask the correct questions to protect the taxpayers situation but that's not something i would want to get into as to what your obligations are other than you should always be honest in your reporting here.

With regard to the accounts what are the other asset of 17k that you have not mentioned - could there be plant or bad debt to w/off that would reduce the corp tax - if there are retained profits then a dividend could be voted to reduce the directors loan account.

You will also need to factor in s455 tax that could potentially be due - this will be charged at 32.5% of the o/s directors loan balance if not repaid within 9 months of the accounts year end and added to the

Finally if you are debt plan already perhaps you are in a stronger situation ins some respects (sad but true), perhaps if the debt needs to be paid this could be added to other liabilities and at the end of the day your repayments will generally be dictated by available funds.

Personally (are you listening hmrc) i wish hmrc would immediately change the rules so that for all companies it is black and white that hmrc/insolvency service must be informed of overdrawn directors loan balances (to the best of practicable ability) for all companies that cease trading (alongside declaration of all o/s taxes - if the director owes the company money) and legally this debt must reported and chased in the same manner as self assessment debt . At present the directors who simply ignore letters from corporation tax/companies house often find that the company ends up being struck off without a question being asked. This would give added clarity to individuals like yourself when you follow the route that you do what the consequences are - you are far from being alone in the route you have gone down.

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