Winding a company up to clear debts
Discussion
So someone I know has racked up £150k worth of debt inc VAT owed , corporation tax, a £50k bounce back loan etc
And has re set up same company name with a slight variation (already had this set up)
And has basically wiped all his debt off
Surely it can’t be that easy to just do that. He used proper insolvency company etc
Just seems unfair for us law abiding tax payers
And has re set up same company name with a slight variation (already had this set up)
And has basically wiped all his debt off
Surely it can’t be that easy to just do that. He used proper insolvency company etc
Just seems unfair for us law abiding tax payers
coolerking72 said:
So someone I know has racked up £150k worth of debt inc VAT owed , corporation tax, a £50k bounce back loan etc
And has re set up same company name with a slight variation (already had this set up)
And has basically wiped all his debt off
Surely it can t be that easy to just do that. He used proper insolvency company etc
Just seems unfair for us law abiding tax payers
It's called Phoenixing and, no, it is not as easy as that. But, yes, it is possible and it does happen. And has re set up same company name with a slight variation (already had this set up)
And has basically wiped all his debt off
Surely it can t be that easy to just do that. He used proper insolvency company etc
Just seems unfair for us law abiding tax payers
Here is the Government Guidance on it, if you wish to read more:
https://www.gov.uk/government/publications/phoenix...
Edited by Clockwork Cupcake on Wednesday 2nd July 23:00
You have to keep in mind that whilst some business owners use this approach nefariously, the ability to do so is a trade-off for what is an otherwise good and necessary system that works well.
The 'Limited' you see in registered businesses mean that the owners and shareholders liability for business debts are limited to the their initial investment only. If a company goes bust, the only liability will be any personal guarantee they've signed for loans or overdrafts. Otherwise they can walk away financially unscathed.
The reason this exists is because nobody would start a business without it (other than the one-man-band type traders who operate as sole traders). The personal financial risk would be far too high.
That doesn't mean starting a business is risk-free. Many who do will most likely have re-mortgaged their home, cashed in pensions early or wiped out savings in order to get the thing up and running. If it all goes wrong, they don't get that money back. But limiting their liability via a Ltd company - and the tax advantage of dividend payments - provides the incentive necessary to encourage private enterprise which creates employment and contributes very significantly to the UK economy.
When a company is wound up and a new one started as you describe, the reason may be entirely valid. It could be that they have one customer who went bust owing them a significant amount of money, meaning that at that moment in time, they became unable to pay their debts. In this case, they are legally obliged to liquidate the company. The directors would be prosecuted if they didn't and the role of a Liquidator is to check that all is above board.
If the company's trajectory was otherwise good, starting again enables that trajectory to be maintained and staff to remain employed.
It is easy to abuse the system but this is not without consequence on the owners. Bank accounts can be more difficult open, trade credit can be harder to obtain, reputation may be affected and staff may be more difficult to hire. And HMRC are wise to such ruses. If an investigation reveals an owner who bled the company dry for personal gain at the expense of creditors prior to its liquidation, they have powers that range from banning owners from being a Director to pressing criminal charges.
The 'Limited' you see in registered businesses mean that the owners and shareholders liability for business debts are limited to the their initial investment only. If a company goes bust, the only liability will be any personal guarantee they've signed for loans or overdrafts. Otherwise they can walk away financially unscathed.
The reason this exists is because nobody would start a business without it (other than the one-man-band type traders who operate as sole traders). The personal financial risk would be far too high.
That doesn't mean starting a business is risk-free. Many who do will most likely have re-mortgaged their home, cashed in pensions early or wiped out savings in order to get the thing up and running. If it all goes wrong, they don't get that money back. But limiting their liability via a Ltd company - and the tax advantage of dividend payments - provides the incentive necessary to encourage private enterprise which creates employment and contributes very significantly to the UK economy.
When a company is wound up and a new one started as you describe, the reason may be entirely valid. It could be that they have one customer who went bust owing them a significant amount of money, meaning that at that moment in time, they became unable to pay their debts. In this case, they are legally obliged to liquidate the company. The directors would be prosecuted if they didn't and the role of a Liquidator is to check that all is above board.
If the company's trajectory was otherwise good, starting again enables that trajectory to be maintained and staff to remain employed.
It is easy to abuse the system but this is not without consequence on the owners. Bank accounts can be more difficult open, trade credit can be harder to obtain, reputation may be affected and staff may be more difficult to hire. And HMRC are wise to such ruses. If an investigation reveals an owner who bled the company dry for personal gain at the expense of creditors prior to its liquidation, they have powers that range from banning owners from being a Director to pressing criminal charges.
When companies apply to be dissolved there is a period of time when creditors can come forward and stop dissolution.
Normal companies don't generally bother for rudimentary amounts. HMRC absolutely do bother, so its not as easy if the debt owed is to them (which if its for CT, PAYE, VAT, then obviously so).
I am sure a few slip through the net, though.
Normal companies don't generally bother for rudimentary amounts. HMRC absolutely do bother, so its not as easy if the debt owed is to them (which if its for CT, PAYE, VAT, then obviously so).
I am sure a few slip through the net, though.
Abc321 said:
When companies apply to be dissolved there is a period of time when creditors can come forward and stop dissolution.
Normal companies don't generally bother for rudimentary amounts. HMRC absolutely do bother, so its not as easy if the debt owed is to them (which if its for CT, PAYE, VAT, then obviously so).
It's a little misleading to say 'HMRC absolutely do bother'. Normal companies don't generally bother for rudimentary amounts. HMRC absolutely do bother, so its not as easy if the debt owed is to them (which if its for CT, PAYE, VAT, then obviously so).
The appointed liquidator primarily acts in the interests of creditors of the company that appointed them. Their role is to determine that the company is indeed insolvent and then manage the sale of assets and distribute what they can to creditors which would include HMRC. So if the company owes HMRC £100k and the liquidator says sorry, but we can only get you a fiver, HMRC will accept that and write the remainder off. There is nothing to be gained in halting the liquidation process as there is nothing left in the pot.
However, if the Liquidator finds or suspects there has been asset stripping going on (owners extracting money from the business knowing it will lead to insolvency), they will notify creditors of this fact any of whom may apply to suspend the liquidation process in order that the matter can be investigated.
If a creditor suspects the company and liquidator are in cahoots (which does happen), they can also seek intervention with the Insolvency Service.
And sometimes, creditors will apply for a suspension for no reason other than to be an annoyance and provide a bit of payback if they know they're going to loose out.
But providing everything is above board and due process is followed, HMRC will not pursue the matter.
For someone who has run a small business for a number of years my biggest creditor is HMRC. The idea that I could withdraw all the money from the Company for personal use, wipe out a large Corporation Tax and Vat liability, go into liquidation and then start again is ridiculous.
Surely HMRC must be all over such antics, as it’s hardly difficult to detect.
Surely HMRC must be all over such antics, as it’s hardly difficult to detect.
Rob 131 Sport said:
Surely HMRC must be all over such antics.
They are, but only if the numbers are big enough to make it worth their while. Leave HMRC with enough unpaid tax, particularly VAT, and they will come after you for personal liability if it looks like you have personal wealth. It's easy enough for them to tell by looking at your tax returns, Stamp Duty records etc. The problem is that "enforcement" is very costly.Related to this, in a liquidation tax debts rank only behind fixed charges. i.e. ahead of most other creditors.
Panamax said:
Rob 131 Sport said:
Surely HMRC must be all over such antics.
They are, but only if the numbers are big enough to make it worth their while. Leave HMRC with enough unpaid tax, particularly VAT, and they will come after you for personal liability if it looks like you have personal wealth. It's easy enough for them to tell by looking at your tax returns, Stamp Duty records etc. The problem is that "enforcement" is very costly.HMRC do not have the resources to investigate every liquidation. Instead, they rely upon the Liquidators to report on the situation and confirm that all is above board and there's nothing left in the pot, or otherwise.
Insolvency is a business heavily regulated by the Insolvency Service and it is they who undertake investigation if a Liquidator indicates wrong-doing, not HMRC.
In the case of HMRC pursuing Directors for unpaid tax, this will only happen where there has been a case of fraud or misrepresentation.
Gassing Station | Jobs & Employment Matters | Top of Page | What's New | My Stuff