Corporation Tax screw up. What next?

[Jay Cartay]

So let me start off by saying that I know full well I've cocked up here, and this is my fault. Any consequences which follow are something I will just have to deal with as a result.

Now that's out of the way, I need some advice. Last year I was on an arrangement to pay my CT for the previous year. I paid it in full, but the arrangement lapsed when I fell out of work during it. Once back in work, I continued to make monthly payments until December, at which point I settled up. But the payments were higher than previously expected and thus have left me with no money set aside for the last year's tax which I am now trying to pay.

I was unaware that time to pay is not something they give out again once you've had it once. I naively thought that I could get the same again and just pay it. Unfortunately I am only sorting this now due to some cash flow issues and I'm really on the back foot.

I've worked out what I need to pay every month to get this paid off by December again, but I am going to be in the same position again this time next year and I really need to put a stop to this cycle. I'm hoping that even if they do not give me time to pay, regular monthly payments towards my balance will stave off any further action.

I was thinking though, could I get a business loan to pay this off? And if I apply, should I tell them that a tax bill is the reason? Or should I say I need it for working capital and perceived cashflow issues? Or perhaps a mixture of those two and office improvements/new equipment etc.?

To complicate further, my Director's Loan account is £6500 overdrawn. The tax bill is £4900. I'm not entirely sure how I've managed this but again, I know it's my fault and it's up to me to fix it. If I took the bank loan option over 24 months, the calculator suggests I'm looking at about £254 a month which would allow me to also set aside the money for this year. That would be fantastic.

Any good advice will be gratefully received. Please try not to bash me too much, I'm pretty stressed out about this and aware I've been a complete idiot. Many thanks.

[Scruff]

Go Umbrella, today. You are definitely not cut out to run your own business. Your business model does the rest of us no favours.

[filthy1980]

obvious question dude but have you got an accountant and what does s/he advise?

sounds like to you need to take a step back from your bills and look at things with a clear head, get some professional advise, assess your options and stick to whatever plan you come up with (unless it's one that's going to get you into more trouble)

[Jay Cartay]

I just need to pay this bugger off. I'm very clear now on what I need to do in the future regarding running things properly, but it doesn't solve the immediate problem. I would never throw in the towel.

[missinggreenfields]

I don't understand how a business can't earn enough money to pay the tax bill - get the money in each month, put money to one side each month if you can't manage it annually. Where has the money gone - I'd guess into your pocket, given that you have a loan.

Why doesn't the company just recall the loan that you owe? Repay the money to the company, company then has enough to repay the tax bill and then have a little bit left over. If you've also taken dividends, then you need to look into whether you had the profit there to take the money - otherwise if there's an investigation it'll get reclassified and you'll have tax and NI to pay on them.

If you get a loan, then don't lie about why you need one - that's not a good idea.

If it was my business, I'd not bother with a business loan - call in the loan that the directors owe, and pay the corporation tax bill. Then start accounting properly and putting money to one side to make sure you can pay the taxes that fall due - it's not that hard to guess how much the bill will be, but if not then just bank 20% of each invoice and stick it in a bank account somewhere, preferably one that gives you decent interest and has a notice period so you can't dip into it.

Then if you personally need money, look for the best deal that you can personally get, and use that to live on. Separate the business and the personal, and live within your means.

If you don't think you can manage that, then settle the HMRC debt, close the company, and go with an umbrella company - at least you know where you are then.

Good luck.

[DaveB]

Take a personal loan to clear the Directors Loan account. Use that to settle to CT bill and leave something in the co. to get you started building up the bank account.

If you don't pay back the Directors Loan in time (9 months after co. year end) then your Co. will have an even bigger tax bill and so will you.

An overdrawn director’s current account is the same as a loan account

An overdrawn director’s current account that is not repaid is treated as an outstanding loan and this may create tax complications for both the company and its director:

Company tax: a section 455 tax charge
Income tax: a taxable benefit on interest-free loans or tax charge on write off
Compliance: Corporation tax return extra schedules and P11D reporting
Company tax charge on outstanding loans to participators: s455 CTA 2010

When a director (or any other participator in a close company) is made a loan which is left outstanding for more than 9 months after the company’s accounting period end, the company will be required to pay tax under s455 CTA 2010.
Section 455 tax is payable at 25% of the outstanding loan balance.
Tax is due 9 months and one day after the end of the accounting period in which the liability arises.
When the loan is repaid in full or in part s455 tax is fully or proportionally repayable 9 months and one day after the end of the accounting period in which the repayment is made.
Where a loan is repaid and then a similar sum advanced shortly after, under measures that apply from 20 March 2013 the repayment may be matched to the later advance, the effect being that there is no actual repayment (see From 20 March 2013 below). Where a director maintains a current account and also a loan account, the two balances may be kept separate and accounted for separately.
If one individual has two loan accounts that are accounted for separately for reporting purposes and one is overdrawn HMRC may try to resist aggregating them for tax and so will not treat the two as one net balance.
Two directors (typically spouses) may agree between them to allow an offset so that one's loan credit is set against the other's loan debit: HMRC will not accept the offset unless there is evidence to prove the intention to create a joint loan account.

[dx4100]

What a mess... Do as said above but go Umbrella...

[Maslins]

Sadly it's a situation so many people get themselves into (and often even having an accountant along the way regularly warning them doesn't prevent it). They're used to being PAYE hence all taxes dealt with before they see their money. As a new biz owner, invoicing gross, they see lots of money in the company bank account. They either ignore the fact they'll have big tax bills further down the line, or think "that's fine, they're not due for ages, I'll worry about them later". Then, time to pay comes, and there's no cash to pay them.

My view would be to take out a personal loan, and put it into the company. This should hopefully solve two problems with one transaction, it'll clear the director loan, and also boost the company's coffers enabling it to pay its corporation tax.

Then, you'll basically need to be more frugal over the next year or so. Withdrawing less from the company (so it has enough to pay the next year's CT when it falls due), and also using some of what you are withdrawing to pay down the personal loan.

EDIT - what DaveB said!

[northernladuk]

I don't understand how a business can't earn enough money to pay the tax bill - get the money in each month, put money to one side each month if you can't manage it annually. Where has the money gone - I'd guess into your pocket, given that you have a loan..

This. Bearing in mind we tend to be able to pocket about 60-70% of income where has all that money gone? I think you need to look at your lifestyle here. You owe the tax man a lot so time to reign in the spending for a year.

[VillageContractor]

Firstly get an accountant and learn sharpish or go to an umbrella.

You have 2 options - increase your income and/or cut your monthly expenditure.

I'm guessing the second is the most viable but likely what you don't want to hear, hence why you're in this situation.