Creditors Voluntary Liquidation

[Contreras]

I stand corrected.

It would be converted to a loan with BIK implications that would attract additional taxes that need to be paid by the individual instead.

Yes that is true too. I've lost track of the sums being talked about but there may have been high rate tax on the dividend which if re-assessed is no longer due, which could partially offset the tax charge on the loan.

I do wonder though, if the OP can manage to repay the loan sufficiently for the company to meet its CT bill (and liquidators fee), willl HMRC (and the liquidator) go away happy and the personal taxation aspects become glossed over?

[ASB]

But if you don't have teh CT to cover the dividends they will be declared illegal

Actually no. It is if you don't have the distributable reserves.

Contingent liabilities need to be included in these but being unable to pay CT does not of itself make the dividends unauthorised.

(However it does amount to much the same thing).

Consider.

Year 1 I make a nice profit, pay a nice dividend (the CT is allowed for; not yet paid because it is not due).

Year 2 I decide to buy a load of widgets. So many that I spend the CT money. Unfortunately the widget market collapses and I go bust. The CT on the loss is of course calculated and offset. But there remains a shortfall.

Does this make the dividends "illegal". No.

It makes me a damn idiot, it might make me in breach of fiduciary duties as a director. (Arguable, if I can show reasonable expectation of selling the widgets etc I may be ok).

Certainly the extent by which the "divdends" the op took exceed the reserves will (should) be classed as a loan, but this may be a lower sum that the total.

[tractor]

Actually no. It is if you don't have the distributable reserves.

Contingent liabilities need to be included in these but being unable to pay CT does not of itself make the dividends unauthorised.

(However it does amount to much the same thing).

Consider.

Year 1 I make a nice profit, pay a nice dividend (the CT is allowed for; not yet paid because it is not due).

Year 2 I decide to buy a load of widgets. So many that I spend the CT money. Unfortunately the widget market collapses and I go bust. The CT on the loss is of course calculated and offset. But there remains a shortfall.

Does this make the dividends "illegal". No.

It makes me a damn idiot, it might make me in breach of fiduciary duties as a director. (Arguable, if I can show reasonable expectation of selling the widgets etc I may be ok).

Certainly the extent by which the "divdends" the op took exceed the reserves will (should) be classed as a loan, but this may be a lower sum that the total.

You need to read and understand the link I posted above. CT/Other creditors money is not yours to speculate with, however confident you feel about it. HMRC might argue that even though the tax due date had not yet passed, you could and perhaps should have paid the tax up earlier.

In any event we are not talking about CT used for further investment, we are discussing a specific situation where dividends were declared and taken illegally.

[ASB]

You need to read and understand the link I posted above. CT/Other creditors money is not yours to speculate with, however confident you feel about it. HMRC might argue that even though the tax due date had not yet passed, you could and perhaps should have paid the tax up earlier.

In any event we are not talking about CT used for further investment, we are discussing a specific situation where dividends were declared and taken illegally.

I don't disagree with that.

I was merely pointing out that an inablity to pay CT does not mean that previous dividends were unauthorised and can be reclaimed (I accept that it is often the case they were paid improperly but it is not a given).

In this particular case it is completely unknown what - if any - reserves were available for distribution. Yes it is likely it was nil. But that is not a certainty. To know that needs sight of all the accounts for all the periods in question.

[BrilloPad]

I do wonder though, if the OP can manage to repay the loan sufficiently for the company to meet its CT bill (and liquidators fee), willl HMRC (and the liquidator) go away happy and the personal taxation aspects become glossed over?

I certainly hope so. Thing is when HMRC get their teeth in they are like a Rottweiler.

ExMrsBp1 works for tax department. Once someone was due a £16 rebate. They vowed not to let them get it back until they had spent £500 in accountants fees.

[northernladuk]

So what's the update?