Reading the signs - business failure
Discussion
Not me 
My good friend has been watching the steady demise of his computer shop and is now at the point at which there is no point continuing and wants to know the best way out.
Company has more or less the following:
Ltd co, 1 share holder (himself)
Stock/assets valued at maybe £10K including a car that he's selling
Creditors inc tax man (corporation tax bill coming in september) of £9K
Business loan of £25K secured on his home. He's under no illusions that he'll have to convert this to a personal loan and pay this one off. He's about to talk to the back about that now.
Deptors - he's owed around £15K but doesn't see any chance of getting it as it's been disputed for last 18 months with no success.
Basically he wants to know the correct procedure for shutting up shop. Will the tax man chase him for the corp tax? I don't think he's taken any dividends but then i'm not seeing the whole picture.
He's gradually reducing his stock but the money is just evaporating in to thin air.
My good friend has been watching the steady demise of his computer shop and is now at the point at which there is no point continuing and wants to know the best way out.
Company has more or less the following:
Ltd co, 1 share holder (himself)
Stock/assets valued at maybe £10K including a car that he's selling
Creditors inc tax man (corporation tax bill coming in september) of £9K
Business loan of £25K secured on his home. He's under no illusions that he'll have to convert this to a personal loan and pay this one off. He's about to talk to the back about that now.
Deptors - he's owed around £15K but doesn't see any chance of getting it as it's been disputed for last 18 months with no success.
Basically he wants to know the correct procedure for shutting up shop. Will the tax man chase him for the corp tax? I don't think he's taken any dividends but then i'm not seeing the whole picture.
He's gradually reducing his stock but the money is just evaporating in to thin air.
Eric Mc said:
Why has he a Corporation Tax bill if the business is failing? Surely he must have some allowable losses to reduce or wipe out this Corpration Tax liability.
For a start, it looks like he has a bad debt to write off of £15,000 - which could reduce his tax bill by £2,850.
For a start, it looks like he has a bad debt to write off of £15,000 - which could reduce his tax bill by £2,850.
That's a good point. I think he's owed some dividends, not sure. How does he go about writing off the bad debts?
To write off the bad debt, you simple transfer the balance from the "Current Assets" section of the balance sheet to a Profit and Loss Account expense heading called "Bad Debts Written Off". Once done, this will reduce the company's profits for the year and consequently its tax bill.
If there was VAT paid over on the original sale, then that VAT can also be reclaimed under the "VAT Bad Debt Relief" rules.
If there was VAT paid over on the original sale, then that VAT can also be reclaimed under the "VAT Bad Debt Relief" rules.
Eric Mc said:
To write off the bad debt, you simple transfer the balance from the "Current Assets" section of the balance sheet to a Profit and Loss Account expense heading called "Bad Debts Written Off". Once done, this will reduce the company's profits for the year and consequently its tax bill.
If there was VAT paid over on the original sale, then that VAT can also be reclaimed under the "VAT Bad Debt Relief" rules.
If there was VAT paid over on the original sale, then that VAT can also be reclaimed under the "VAT Bad Debt Relief" rules.
Would that help him with the upcoming Tax bill for the accounts that have already (must have been) submitted?
Depends at what point in time he decided that the debt was irrecoverable. If it was during the last accounting period, he could submit an amended tax computation claiming the bad debt relief.
Is the next set of accounts going to be the last?
Is the company ceasing to trade?
If he writes the bad debt off in the last set of accounts, will it create a loss?
If it does, he would be able to carry the loss back to the previous accounting period and reclaim the Corporation Tax he had already paid for that accounting period.
Is the next set of accounts going to be the last?
Is the company ceasing to trade?
If he writes the bad debt off in the last set of accounts, will it create a loss?
If it does, he would be able to carry the loss back to the previous accounting period and reclaim the Corporation Tax he had already paid for that accounting period.
Is the bad debt really a bad debt yet? we have just collected £7000 for another PH member and operate a no collection no fee policy. In this case though we would insist on a personal guarantee from the OP for our fees as he is closing the company.
Feel free to PM me to have a chat about this or see our website www.debtrecovery.tv for further information.
Feel free to PM me to have a chat about this or see our website www.debtrecovery.tv for further information.
Little update.... It appears that the 'burying your head' techinique doesn't work...
His computer shop is finished. He's not been able to pay the rent, has left and now has lost his only source of income. The income it had generated he loaned to another company of his 'Y' that he started but it failed to get off the ground.
computer shop owes £10K in corp tax
'Y' owes Computer shop 15K but can't pay it as that is also broke!
Neither company has any assets to speak of. He's personally skint and considering an IVA/Bankruptcy and getting a job in tescos.
Now, if the computer shop doesn't pay the corp tax (he can't see the point of employing an accountant to fix the mess), will he be held personally responsible?
Basically he should have bailed last year when it was faltering but hung on in blind optimism. Having hung on to one myself and lost £100K instead of bailing at £50K I can understand how it happens.....
His computer shop is finished. He's not been able to pay the rent, has left and now has lost his only source of income. The income it had generated he loaned to another company of his 'Y' that he started but it failed to get off the ground.
computer shop owes £10K in corp tax
'Y' owes Computer shop 15K but can't pay it as that is also broke!
Neither company has any assets to speak of. He's personally skint and considering an IVA/Bankruptcy and getting a job in tescos.
Now, if the computer shop doesn't pay the corp tax (he can't see the point of employing an accountant to fix the mess), will he be held personally responsible?
Basically he should have bailed last year when it was faltering but hung on in blind optimism. Having hung on to one myself and lost £100K instead of bailing at £50K I can understand how it happens.....
Eric Mc said:
I can't believe he didn't have an accountant already.
I'm afraid the prognosis doesnt't look good. Your friend seems to have sunk the ship for want of a ha'porth of tar.
I think the ship was going to sink anyway, now it's a case of does he pay his accountant to sink it properly or face some issues with the unpaid corporation tax - or is that simply a company issue and not his personally?I'm afraid the prognosis doesnt't look good. Your friend seems to have sunk the ship for want of a ha'porth of tar.
Normally, limited company debts are "limited" to the company and the individuals concerned are not pursued personally.
However, if there is any evidence of wrongful, negligent or fraudulent trading, then anyone owed money by the company might be able to go after the individuals. It's called "lifting the veil of incorporation".
The fact that he appears to have used one of his companies to try and prop up another which was already failing could indicate that he may not have traded very sensibly and maybe even negligently. If he treated himself or any connected company as a "preferrential creditor" over other outside creditors, he could be at risk.
Again, he seems to have skimped on professional advice and paid the price.
Without being too harsh, people who run businesses like this really do deserve whatever befalls them.
However, if there is any evidence of wrongful, negligent or fraudulent trading, then anyone owed money by the company might be able to go after the individuals. It's called "lifting the veil of incorporation".
The fact that he appears to have used one of his companies to try and prop up another which was already failing could indicate that he may not have traded very sensibly and maybe even negligently. If he treated himself or any connected company as a "preferrential creditor" over other outside creditors, he could be at risk.
Again, he seems to have skimped on professional advice and paid the price.
Without being too harsh, people who run businesses like this really do deserve whatever befalls them.
Eric Mc said:
Normally, limited company debts are "limited" to the company and the individuals concerned are not pursued personally.
However, if there is any evidence of wrongful, negligent or fraudulent trading, then anyone owed money by the company might be able to go after the individuals. It's called "lifting the veil of incorporation".
The fact that he appears to have used one of his companies to try and prop up another which was already failing could indicate that he may not have traded very sensibly and maybe even negligently. If he treated himself or any connected company as a "preferrential creditor" over other outside creditors, he could be at risk.
Again, he seems to have skimped on professional advice and paid the price.
Without being too harsh, people who run businesses like this really do deserve whatever befalls them.
However, if there is any evidence of wrongful, negligent or fraudulent trading, then anyone owed money by the company might be able to go after the individuals. It's called "lifting the veil of incorporation".
The fact that he appears to have used one of his companies to try and prop up another which was already failing could indicate that he may not have traded very sensibly and maybe even negligently. If he treated himself or any connected company as a "preferrential creditor" over other outside creditors, he could be at risk.
Again, he seems to have skimped on professional advice and paid the price.
Without being too harsh, people who run businesses like this really do deserve whatever befalls them.
Agree completely.I would say, though, the chances of the DTI showing any interest whatsoever in his case are pretty much zero, in my experience, thus I doubt very much that he would ever be made liable for the debts to the inland revenue, or anyone else for that matter.
I also agree with the fact that he's been incompetent BUT i've also been in a similar situation and concentrated so hard trying to bail the water out of my sinking ship that I nearly went down with it.
Most of us here watch air crash investigation and say we'd have done things differently or 'why didn't they realise........'
Most of us here watch air crash investigation and say we'd have done things differently or 'why didn't they realise........'
ACEparts_com said:
I also agree with the fact that he's been incompetent BUT i've also been in a similar situation and concentrated so hard trying to bail the water out of my sinking ship that I nearly went down with it.
Most of us here watch air crash investigation and say we'd have done things differently or 'why didn't they realise........'
That analogy is not sound though - as a director he had a responsibility to make himself aware of problems and attempt to deal with them not pull his jumper over his head and shout NerNerNerNer untill they went away.Most of us here watch air crash investigation and say we'd have done things differently or 'why didn't they realise........'
Please give your friend a chinese burn.
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