Pay another company's debt?

[PMMan]

I had a run of bad luck a couple of years ago and ran up about £10k Corporation Tax debt in a company. All other bills were paid, so there is no credit card, no loan, no outstanding PAYE/NIC or VAT. The only debt is the CT.

I stopped using the first company and started to use a new company, along with a new contract. This business is going well and everything is in order.

I have recently called HMRC to discuss the outstanding CT and have come to an agreement to repay this (before it is closed down and people knock at my door). I am going to pay it off at £2.5k per month from August, over 4 months.

My initial thoughts were to start my next contract (July) in the original company, and then pay off the CT debt (along with all the new accrued VAT and PAYE/NIC etc), leaving my second company dormant for 6 months.


I would prefer to stay contracting in my second company and somehow pay some money into the first company to clear the debt. Is there a way to do this? I basically want to pay the debt and close down the company.

[ASB]

I had a run of bad luck a couple of years ago and ran up about £10k Corporation Tax debt in a company. All other bills were paid, so there is no credit card, no loan, no outstanding PAYE/NIC or VAT. The only debt is the CT.

I stopped using the first company and started to use a new company, along with a new contract. This business is going well and everything is in order.

I have recently called HMRC to discuss the outstanding CT and have come to an agreement to repay this (before it is closed down and people knock at my door). I am going to pay it off at £2.5k per month from August, over 4 months.

My initial thoughts were to start my next contract (July) in the original company, and then pay off the CT debt (along with all the new accrued VAT and PAYE/NIC etc), leaving my second company dormant for 6 months.


I would prefer to stay contracting in my second company and somehow pay some money into the first company to clear the debt. Is there a way to do this? I basically want to pay the debt and close down the company.

Talk to the accountant; but essentially Co 2 can acquire all the shares in Co 1 for a nominal sum. It then assumes the debts. However this may complicate your accounting until such point as Co 1 is wound up.

Whether or not this is fiscally prudent is a different matter entirely.

[Greg@CapitalCity]

My initial thoughts are, if company 1 owed £10k corporation tax, but has a zero bank balance, then you 'must' have taken loans from the company, as dividends can only be taken from a company that holds retained earnings . That being the case, for the last few years your company should have been filing accounts showing loan interest being paid on a £10k loan, and there should have been S455 tax paid on the outstanding loan balance through the company tax return.

One option therefore is provided company 2 can handle the cashflow issue, take a Directors loan from company 2 to repay the loan you have with company 1 - company 1 can settle its debts. Its effectively a way of transferring the debt to company 2, and then you can work your way through repaying the Directors loan to company 2 while keeping an eye on your personal earnings/higher rate tax thresholds etc. It might help keep things simple.

And if you emptied out the company bank account of company 1 by paying out a salary, then its back to the drawing board - there will be no loans. Your accountant will be able to help you with this.