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Insolvent Company - HMRC

Strike company off or opt for a payment plan?

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Hi

A client of mine was providing services to various businesses through her own Ltd company (she was the sole shareholder  and sole director). She recently decided to stop trading and the balance sheet shows £5k of VAT owed to HMRC. There is no cash in the Ltd company to pay HMRC as her director account is overdrawn by a similar amount (i.e. she's also the company's sole debtor).

She was advised by a previous accountant to allow HMRC to force the company into liquidation as it has no assets (other than her debtor balance) and so there's nothing for them to take - apparently for £5k they'll 'let it go' and won't pursue her for the debt she owes the business.

I wondered if anyone had experience of this in practice, particular where the company owes a small amount (e.g. less than £10k). It doesn't sit right with me as she has the means to repay the debt to the company, which would allow it to settle with HMRC. I'd be more inclined to suggest a payment plan with HMRC to settle what they're owed.

She has no further use for this company and is leaving the industry she's in altogether. She is likely to start trading in a new industry and may want to start a new Ltd company,  and so doesn't want anything  to show on her record that would affect her reputation (e.g. to become a disqualified director) or ability to run a company in a new industry.

Does anyone have any experience in how HMRC are likely to deal with this in practice. Are they likely to simply 'let it go' on the basis there are no tangible assets for them to take posession of? If so could this result in her becoming a disqualified director.

I basically need to know if I would be giving her bad advice by advising to repay the debt to the company and paying HMRC - could she really get  off scot-free?

Thanks

AC

Replies (4)

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By Mukesh Mahe
Mar 20th 2017 10:35

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By Madona
Jun 2nd 2017 06:39

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By 4uvak
Mar 27th 2018 21:03

I would suggest to repay the debt as VAT is not an ordinary tax and VAT is not company's money. The company collects VAT on behalf of HMRC. The company should not use VAT for any other purposes. Therefore, technically, the VAT supposed to be collected from customers and passed to HMRC. It cannot be deducted by expenses or anything else. So, basicaly, the client has collected VAT on behalf of HMRC and than spent it for something else. This might look like theft...
I would stay within the law and if the client has other plans, let them go. People don't realise that director is personally responsible for everything they do through their company. And when audited, the answer that my accountant/agent/colegue/friend etc advised me such and such will be far from convincing for HMRC. Some people think that accountant who always agrees with them is the best accountant. In reality such an accountant simply does not care. I would ask which accountant they whould prefer when HMRC knock to their door one day...

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By infocareer
May 13th 2018 12:57

Pretty! This was a really wonderful article. Thank you for providing these details.

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