Medical Supply Company Owed Money By Directors And Large Corporation Tax Liability

The Challenge

A company in the medical sector with a turnover of approximately £175,000 was in a solvent position but faced a significant challenge from HMRC. The company was not insolvent and had no outstanding loans or overdraft facilities. However, it owed approximately £45,000 in Corporation Tax, all of which was owed to HMRC. A large component of this debt was a Section 455 tax, which is levied on a commercial loan made to the director. The director had provided a personal guarantee to the company’s mortgage provider, adding another layer of financial exposure. The company needed to negotiate a “Time To Pay” (TTP) arrangement with HMRC to manage the debt, but HMRC would not enter into discussions until the director’s loan, indicated by the Section 455 tax, had been repaid in full.

The Solution

In early 2015, the director contacted KSA to assist with an informal TTP arrangement. KSA’s role was to approach HMRC on the company’s behalf and present a proposal for a manageable repayment plan. KSA also discovered that there were other registered charges against the company that were outstanding, which were a legacy of former facilities. KSA advised the director on this issue, and steps were taken to have these charges formally listed as satisfied. The director’s loan, and the associated Section 455 tax, was the primary obstacle to a successful TTP arrangement. As there was no clear strategy for its repayment, HMRC would not budge on its decision to withhold discussions. The company had to address the director’s loan before any progress could be made on the TTP arrangement with HMRC.

The Results

The case study does not provide a definitive outcome for this particular situation. However, it highlights a critical point in business finance: the presence of a director’s loan can completely derail attempts to negotiate with HMRC, even when a company is otherwise solvent and has a good track record. The company’s attempt at a TTP was rejected by HMRC, which insisted on the repayment of the director’s loan before any further discussions could take place. This demonstrates the rigid stance of HMRC on such matters and the importance of having a clear strategy for all financial liabilities, including internal loans. It also shows the value of a comprehensive financial review by an expert like KSA, who was able to identify and address other outstanding issues, such as the unsatisfied charges, which could have posed a problem in the future.