Sole trader or limited company?

Most people know the difference, but it is all too common for directors to mix their company bank account with their personal one. 

In most circumstances this is absolutely fine as there will be sufficient funds remaining to cover liabilities but what if the company bank account no longer has funds to meet tax liabilities?

The pitfalls of not retaining a tax reserve are all too obvious. If the temptation to use cash for other purposes cannot be resisted then you may find yourself with a tax liability but no liquid assets to deal with it. HMRC will seek to recover the sums due. 

If you are in this situation – experiencing temporary cash flow problems and are unable to meet the tax you owe, a time to pay arrangement can be put in place, but you do need to act quickly with this approach. If you hesitate and ignore the issue then you may run out of time. We would always recommend a proactive approach with HMRC, don’t wait to be contacted by them about a late payment.

If a liquidator is ultimately appointed then the likelihood is that the director will have to repay a director's loan or illegal dividends. This assumes that funds that should have been used to pay tax debts have been removed by the director which, in a simple contractor business, is the most common scenario. In this case, a director has essentially lost the security of limited liability protection and the liquidator will pursue them personally for the sums due.

How ContractorMVLs can help

Unfortunately, we have seen a number of failed contractor companies over the years and most have failed due to problems in the individual director's personal lives.

ContractorMVLs can advise in a distressed situation even if just to act as a sounding board on a no obligation and confidential basis. 

Get in touch with a member of our Restructuring team to find out more about how we can.