Question RE tax, HMRC and bankruptcy
Discussion
Definitely not me, but I have a question regarding someone I am close to. I'll try to summarise the situation before asking my ultimate question.
Person owned a business, which was doing very well pre-covid. Purchased some land to build another building to expand business, done that to the cost of £1m. Covid came along, business seriously struggling. Rented out extra warehouse to help pay the additional new mortgage.
Business was bad, person was advised to not pay HMRC business tax during covid because government were helping struggling businesses. He then got a bill for a few hundred £k from HMRC.
Business couldn't afford, administrators came in, sold off the business to pay HMRC. Business plus buildings sold off for less than they were worth, by some considerable margin.
At this stage I thought person was "all clear" but left with very little aside house equity. His mother died earlier this year, he is set to receive £30k inheritance, but it is currently in probate. His plan was to sell house and emigrate to move to his wife's native country.
House sale agreed approx 4-6 weeks ago, cash buyer, no chain at either end. Equity in house approx £450k.
Couple of days ago he got 2 letters from HMRC, 1 for him, another for his wife (who was also a director of the company - although never worked a day in her life there). The letters state "warning of your bankruptcy for £xxx" where, added together, are to the tune of approx £35k.
He has made HMRC aware of the house sale and inheritance, but seems they would like "a payment" now (I am not sure whether that means a "goodwill payment" or they want the full amount.
My question is this.....Considering he can show evidence of the house sale going through (no contracts signed, but all with solicitors) and that he is expecting inheritance, would they even make him, or them, both bankrupt? If they do, and they freeze all of his assets, what would happen to the house etc? Considering the sale of the house would easily pay off the £35k bill, what would happen in that situation? Would they sell the house and give him the remaining from the sale, minus the £35k bill? Surely they can't just take everything (almost £500k with the house and inheritance) to settle a £35k bill?
On top of that, he's just received a court summons to explain why he hasn't paid almost £3k in council tax!
Cheers.
Person owned a business, which was doing very well pre-covid. Purchased some land to build another building to expand business, done that to the cost of £1m. Covid came along, business seriously struggling. Rented out extra warehouse to help pay the additional new mortgage.
Business was bad, person was advised to not pay HMRC business tax during covid because government were helping struggling businesses. He then got a bill for a few hundred £k from HMRC.
Business couldn't afford, administrators came in, sold off the business to pay HMRC. Business plus buildings sold off for less than they were worth, by some considerable margin.
At this stage I thought person was "all clear" but left with very little aside house equity. His mother died earlier this year, he is set to receive £30k inheritance, but it is currently in probate. His plan was to sell house and emigrate to move to his wife's native country.
House sale agreed approx 4-6 weeks ago, cash buyer, no chain at either end. Equity in house approx £450k.
Couple of days ago he got 2 letters from HMRC, 1 for him, another for his wife (who was also a director of the company - although never worked a day in her life there). The letters state "warning of your bankruptcy for £xxx" where, added together, are to the tune of approx £35k.
He has made HMRC aware of the house sale and inheritance, but seems they would like "a payment" now (I am not sure whether that means a "goodwill payment" or they want the full amount.
My question is this.....Considering he can show evidence of the house sale going through (no contracts signed, but all with solicitors) and that he is expecting inheritance, would they even make him, or them, both bankrupt? If they do, and they freeze all of his assets, what would happen to the house etc? Considering the sale of the house would easily pay off the £35k bill, what would happen in that situation? Would they sell the house and give him the remaining from the sale, minus the £35k bill? Surely they can't just take everything (almost £500k with the house and inheritance) to settle a £35k bill?
On top of that, he's just received a court summons to explain why he hasn't paid almost £3k in council tax!
Cheers.
What a mess - he needs to get that house sold asap and pay some bills!
It's far from clear to me why he hasn't already borrowed against the house to pay bills, pending sale.
Rule 1 of business cash flow - never spend your future taxes. So many businesses fail that way and Mr HMRC really doesn't like it. Yes, they will hunt you down.
It's far from clear to me why he hasn't already borrowed against the house to pay bills, pending sale.
Rule 1 of business cash flow - never spend your future taxes. So many businesses fail that way and Mr HMRC really doesn't like it. Yes, they will hunt you down.
Panamax said:
What a mess - he needs to get that house sold asap and pay some bills!
It's far from clear to me why he hasn't already borrowed against the house to pay bills, pending sale.
Rule 1 of business cash flow - never spend your future taxes. So many businesses fail that way and Mr HMRC really doesn't like it. Yes, they will hunt you down.
Fair question, I shall ask him whether he has considered that!!It's far from clear to me why he hasn't already borrowed against the house to pay bills, pending sale.
Rule 1 of business cash flow - never spend your future taxes. So many businesses fail that way and Mr HMRC really doesn't like it. Yes, they will hunt you down.
Odd they've come after him for a corporate debt.
At one point HMRC were asking for Director personal guarantees - I only came across it once - working with a plc, so Mr Director, do you want to provide a joint and several PG for something like £30m HMRC liability when you own about 0.1% of the company. That was a short discussion. I wonder if he got caught up with this?
Otherwise - it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
At one point HMRC were asking for Director personal guarantees - I only came across it once - working with a plc, so Mr Director, do you want to provide a joint and several PG for something like £30m HMRC liability when you own about 0.1% of the company. That was a short discussion. I wonder if he got caught up with this?
Otherwise - it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
E90_M3Ross said:
4Q said:
If it was a ltd co it would be a very rare occurrence for HMRC to come after him for business' taxes
Strange, it was a ltd company.Edited by 4Q on Thursday 21st September 14:01
Countdown said:
E90_M3Ross said:
4Q said:
If it was a ltd co it would be a very rare occurrence for HMRC to come after him for business' taxes
Strange, it was a ltd company.Edited by 4Q on Thursday 21st September 14:01
sleepezy said:
Odd they've come after him for a corporate debt.
- it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
HMRC will argue the company continued to trade after it had become insolvent and the directors are therefore personally liable. They don't need to go to court and prove that point - the threat will scare the daylights out of anyone with any common sense and encourage them to pay up.- it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
Future taxes are a known liability of the company (VAT is a classic) and should be borne in mind by directors on a day-to-day basis. You don't get any sympathy for popping up late in the day saying, "Sorry, Mr HMRC, we spent your money". He will simply reply, "OK, so you ran out of your money and the company was insolvent so you should have stopped trading; you shouldn't have resorted to using our money to prop up your failed business until it was all gone."
On the one hand, many profitable companies become insolvent because they run out of cash.
On the other hand just because a company has some cash doesn't mean it's solvent.
Cash-flow Insolvency Test - is designed to find out whether a company can pay its bills when they fall due. The legal requirement is that you are able to pay your bills in the ‘in the reasonably near future.
Balance Sheet Insolvency Test - If the total value of assets and cash combined has a value that is less than the total value of liabilities then the chances are the company is insolvent.
Panamax said:
sleepezy said:
Odd they've come after him for a corporate debt.
- it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
HMRC will argue the company continued to trade after it had become insolvent and the directors are therefore personally liable. They don't need to go to court and prove that point - the threat will scare the daylights out of anyone with any common sense and encourage them to pay up.- it could be there was a preferential payment, misfeasance or fraud. Or it could be wholly relating to a personal liability.
Future taxes are a known liability of the company (VAT is a classic) and should be borne in mind by directors on a day-to-day basis. You don't get any sympathy for popping up late in the day saying, "Sorry, Mr HMRC, we spent your money". He will simply reply, "OK, so you ran out of your money and the company was insolvent so you should have stopped trading; you shouldn't have resorted to using our money to prop up your failed business until it was all gone."
On the one hand, many profitable companies become insolvent because they run out of cash.
On the other hand just because a company has some cash doesn't mean it's solvent.
Cash-flow Insolvency Test - is designed to find out whether a company can pay its bills when they fall due. The legal requirement is that you are able to pay your bills in the ‘in the reasonably near future.
Balance Sheet Insolvency Test - If the total value of assets and cash combined has a value that is less than the total value of liabilities then the chances are the company is insolvent.
The reason I asked is because this person has asked me for financial help. They're not asking for huge sums, but sums that I'd rather not give them and find it just disappears. They've promised to pay me back once the house sells or when the inheritance comes through.
I am willing to help, but until I know what happens if HMRC try to bankrupt him before the house sale or inheritance. The inheritance isn't made up, I've spoken to one of his brothers, who's confirmed to me that he'll be getting it.....but will he get it if he is made bankrupt or if HMRC seize his assets before it comes through....?
Thanks.
I am willing to help, but until I know what happens if HMRC try to bankrupt him before the house sale or inheritance. The inheritance isn't made up, I've spoken to one of his brothers, who's confirmed to me that he'll be getting it.....but will he get it if he is made bankrupt or if HMRC seize his assets before it comes through....?
Thanks.
darreni said:
If he's not been paying his council tax or HMRC, he is never going to pay you back either. Avoid.
His argument is that it is cashflow that's the issue. After he lost the business he's got nothing, just waiting desperately for the house sale.Edit - I asked why HMRC were after him and his response is that it's personal taxation (ie self assessed). The company used to pay it, but the administrators withheld the payments.
Edited by E90_M3Ross on Thursday 21st September 18:19
Acorn1 said:
Reads like a death spiral business wise.
The fact you mentioned he wants to emigrate was telling
As they say Pay the Man. Sell the house to WBAH
Almost went bankrupt myself in 2009 it's not a great place to be .
The emigration has been on the cards for 15 years, his wife is from where they were going and wants to move back with her family. I know 100% that has nothing to say with this situation The fact you mentioned he wants to emigrate was telling
As they say Pay the Man. Sell the house to WBAH
Almost went bankrupt myself in 2009 it's not a great place to be .
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