Cannot pay VAT/PAYE due to Director's Loan - Need Advice !

[deeniguy]

I worked as a contractor under my limited company formed since since Aug 2013. I had a 6 month contract which ended in Feb 2014 and was uptodate with my VAT/PAYE up until the most recent bill. During the course of my work, i had taken up directors loan which amounts to just under £5k and the VAT/PAYE is around £4k. I am currently still looking for work but haven't been so successful and have decided to apply for benefit in order to pay bills for now.

My accountant has advised me that the directors loan needs to be paid soon so that i can pay HMRC the VAT/PAYE and need to call them to discuss a payment option. How long can i request them to delay the payment?

Any advice would be much appreciated.

[northernladuk]

The one person not to mess about with is the VAT man. Pay him pronto, whatever it takes.

You pay a professional for advice so speak to him. If he says pay it soon then I would pay it soon and look for some other source of credit that won't be as unforgiving as the VAT man.

P.s. I would be thinking about moving accountants if he was the one that suggested you mess about with directors loans in your first contract.

[stek]

How come your accountant actioned the Directors Loan whilst knowing that would mean you were trading insolvently?

[ASB]

How come your accountant actioned the Directors Loan whilst knowing that would mean you were trading insolvently?

He hasnt been trading insolvently. It is the subsequent even ts that have caused the issue. Taking the loan was perhaps somewhat cavalier but it is the position at that time that matters, not the position after.

The vat man will be fairly unimpressed, but the only real action is to ring the helpline and negotiate.

failing to keep to an agreed plan will of course make the vat man glove up for the next chat.

[stek]

He hasnt been trading insolvently. It is the subsequent even ts that have caused the issue. Taking the loan was perhaps somewhat cavalier but it is the position at that time that matters, not the position after.

The vat man will be fairly unimpressed, but the only real action is to ring the helpline and negotiate.

failing to keep to an agreed plan will of course make the vat man glove up for the next chat.

You sure? Surely he loaned himself money collected on behalf of the Tax man that didn't belong to the company?

[TheFaQQer]

My accountant has advised me that the directors loan needs to be paid soon so that i can pay HMRC the VAT/PAYE and need to call them to discuss a payment option. How long can i request them to delay the payment?

Firstly, if the company has no income, why didn't you stop paying salary, thereby reducing your PAYE bill?

Secondly, if your salary is at a level that you need to pay PAYE, why isn't it enough that you can live on without needing to borrow the tax money?

Ring the VAT man and ask what you can do. If the company is only insolvent because they have an outstanding debtor, then as a director, the immediate course of action (as your accountant advised) is to recall that loan and pay the bills that it owes. That doesn't help you personally, but I don't see that the company has many other options.

[TheCyclingProgrammer]

Can't really add to what everyone else has said. You need to find a way of repaying the money to the company so it can pay its liabilities. You may have to consider taking a personal loan to get yourself out of this hole if you can't come to an arrangement with HMRC.

For future reference: taking a director's loan when you've got a healthy balance in your business account, a substantial (at least 6 months, ideally a year) war chest, good work prospects and more than enough money set aside to cover your liabilities = no problem. Taking a director's loan when you've just started out, and not leaving enough money to cover your tax bills = bloody stupid.

[LisaContractorUmbrella]

One of the dangers of not researching your full liabilities as Director of a company - VAT and PAYE are not your money to" borrow" as you feel like it - it belongs to HMRC and they will not take at all kindly to being deprived of it. As NLUK says have a rethink about your accountant

[ASB]

You sure? Surely he loaned himself money collected on behalf of the Tax man that didn't belong to the company?

I do follow your point. But it is not clear cut. The only relevant question is whether there were sufficient distributable reserves at the time the loan was made.

Strictly you do not collect the tax mans money in terms of vat. You accrue a forward liability.

If there was a reasonable expectation of future cash flow, then this can discharge the liability and be acceptable under general guidance. This guidance is literally hundreds of pages long.

but this is a risky strategy. Common sense would dictate ring fencing forward liabilities.

Whether the loan was nominally in excess of distributable funds will depend upon the exact circumstances at the time. There is probably a decent case that the directors were in breach of their fiducary duties.

Given the op is a creditor hmrc could well take a hard line.

[TheFaQQer]

Any advice would be much appreciated.

Sell some of the stocks that you were buying in April so that you can repay some of the debt?

Now i've decided to invest in stocks on a long term basis such as penny stocks.

I will not deal with any options, futures, derivatives spread bets etc, just purely stocks on the US market, mainly OTC