Contractors' Questions: Will his tax debt hurt our new venture together?

Contractor’s Question: I'm starting up a brand new IT-design business with a couple of other contractors who’ve got experience in the field. But one person in this new and gradually forming business owes money to HM Revenue & Customs. How would his tax debt affect his role in the business, the other founding members and the business as a whole, if at all?

Expert’s Answer: Unfortunately it is not clear from your question exactly how this person with a tax debt wishes to become involved in your company. The three possibilities are: as an investor (i.e. shareholder), a director and as an employee. Of course, the person may be all three.

An individual’s personal financial circumstances are irrelevant to them becoming an investor/shareholder and you should have no worries in this circumstance. Equally, if the person intends to be nothing more than an employee, other than a possible “Direct Earnings Attachment Order” imposed by the courts, then their personal finances will not affect your company.

The only situation where your company may become affected would be if the individual were to become a director and subsequently, due to court proceedings, prevented from acting as a director in the future by the courts. This would be very unusual and is only relevant where the individual’s money problems resulted from a previous company involvement when also acting as a director.

So in summary, it is highly unlikely that you should have any concerns about the possibility of one of your participators running into personal financial difficulties. Good luck in your new venture!

The expert was Barry Roback, FCA, a director at the Anderson Group, an accountancy firm serving contractors.

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