Trying to close company but outstanding Directors Loan Account. What are the options? Trying to close company but outstanding Directors Loan Account. What are the options?
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  1. #1

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    Default Trying to close company but outstanding Directors Loan Account. What are the options?

    Hi,

    I stopped contracting back in March this year and have been working as a permanent employee ever since. I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

    Now I stopped trading in March, so there has been no income into the company, or nor have I drawn any money from the company. There is around £15,500 sitting in the company account at the moment.

    I am being told that I cannot close the company until I have paid back the directors loan and tax on it, but I do not have that money available. Since I have taken a pretty dramatic pay cut to go permie, I don't really have much disposable income to pay this back also.

    What are my realistic options or any advise from anyone who has been in a similar boat??

  2. #2

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    Quote Originally Posted by ukznmcl View Post
    Hi,

    I stopped contracting back in March this year and have been working as a permanent employee ever since. I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

    Now I stopped trading in March, so there has been no income into the company, or nor have I drawn any money from the company. There is around £15,500 sitting in the company account at the moment.

    I am being told that I cannot close the company until I have paid back the directors loan and tax on it, but I do not have that money available. Since I have taken a pretty dramatic pay cut to go permie, I don't really have much disposable income to pay this back also.

    What are my realistic options or any advise from anyone who has been in a similar boat??
    Your options are to get a loan to repay the money back to the company or bankruptcy - as you owe the company money it needs to pay that tax bill and HMRC will collect that money one way or another.

    Oh and having checked a previous thread it's worth highlighting what will happen if the company does not pay the corporation tax bill in full.

    The next step would be HMRC appointing a liquidator for the company who will chase you for the money owed and will happily make you bankrupt to recover that money (as that is where his real pay off kicks in).

    Oh and for those people who think I should sugar coat these posts - have you actually dealt with a liquidator in full on "the person deserves it" recovery mode - it's not pleasant
    Last edited by eek; 23rd November 2020 at 22:33.
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  3. #3

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    Quote Originally Posted by ukznmcl View Post
    What are my realistic options or any advise from anyone who has been in a similar boat??
    Your only realistic option is to keep the company open and pay the money back over time. All options lead to you paying the money back, both the DL and the taxes due. The additional headache is that the S455 charge ordinarily takes quite some time to be refunded once the DL is satisfied and the accounts have been submitted for that year; you'll need advice on how to handle that during wind-up, assuming you don't want to wait that long.

  4. #4

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    Good advice here on the S455 charge. You'll need to register though.

    https://www.taxation.co.uk/articles/...rum-winding-it

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    Quote Originally Posted by ukznmcl View Post
    Hi,

    I stopped contracting back in March this year and have been working as a permanent employee ever since. I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.
    You say he informed you. So you didn't know anything about this? Or you say informed you as just gave you the exact figures even though you roughly knew the situation?
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    Quote Originally Posted by ukznmcl View Post
    Hi,

    I stopped contracting back in March this year and have been working as a permanent employee ever since. I am trying to close my company down but my account has informed me that I have a Directors Loan account of £11,411.01 and S455 of £6772.25, and also a Corporation Tax Bill of £26,378.84.

    Now I stopped trading in March, so there has been no income into the company, or nor have I drawn any money from the company. There is around £15,500 sitting in the company account at the moment.

    I am being told that I cannot close the company until I have paid back the directors loan and tax on it, but I do not have that money available. Since I have taken a pretty dramatic pay cut to go permie, I don't really have much disposable income to pay this back also.

    What are my realistic options or any advise from anyone who has been in a similar boat??
    You need to get a loan for £18,000 - plus a bit more to cover accountancy fees for another year. Then you can pay the loan back, loan the company £6772.25 and pay the S455 and the tax bill. Nine months after your next year end (I think that's right), you get the S455 charge back, and the company can reimburse you. Then you can close it.
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    Quote Originally Posted by NotAllThere View Post
    You need to get a loan for £18,000 - plus a bit more to cover accountancy fees for another year. Then you can pay the loan back, loan the company £6772.25 and pay the S455 and the tax bill. Nine months after your next year end (I think that's right), you get the S455 charge back, and the company can reimburse you. Then you can close it.
    I suspect the S455 has been paid to HMRC (it's far higher than the outstanding directors loan would make it).

    So the OP needs to borrow £12,000 - pay the Corporation tax, reclaim the S455 and extract that money when it arrives from HMRC to repay some of the loan.
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    Plenty he can still do if he speaks with a knowledgeable insolvency firm and an accountant who is more of a tax specialist than a generalist.

    The DL account can be cleared on liquidation through an initial distribution in specie.

    The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.

    The CT of course will need to be paid.

    I suspect we won't ever hear from the OP ever again but he might gain some value from reading my post @ https://www.contractoruk.com/forums/...quidation.html and the links contained within.
    Last edited by ChimpMaster; 24th November 2020 at 16:18.

  9. #9

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    Quote Originally Posted by ChimpMaster View Post
    The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.
    Other than not having any money, that is the main headache for the OP, I think. We're talking, perhaps, not far off two years.

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    Quote Originally Posted by ChimpMaster View Post
    Plenty he can still do if he speaks with a knowledgeable insolvency firm and an accountant who is more of a tax specialist than a generalist.

    The DL account can be cleared on liquidation through an initial distribution in specie.

    The S455 will need to be paid and then re-claimed afterwards. This will be a time consuming process.

    The CT of course will need to be paid.

    I suspect we won't ever hear from the OP ever again but he might gain some value from reading my post @ https://www.contractoruk.com/forums/...quidation.html and the links contained within.

    The line in bold is the problem - until he has paid the CT he can't sort out the other bits and there isn't enough money in the company to pay the Corporation Tax.

    The OP can speak to any advisor he wants but until he borrows £12,000 to repay the loan and ensure the corporation tax is paid nothing is going to change.
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