Your credit score is metric used to see how likely you are to make repayments on credit terms you take...
Contractors operating via their own service companies
Over the last four years, Mike Simister, of Insolvency Practitioners Lines Henry Limited, has dealt with a number of contractors who work in the Oil and Gas industry operating through their own service company. He has dealt with two distinct groups: those with surplus funds they wish to extract who require a solvent, Members Voluntary Liquidation; and those with tax bills they are unable to pay, who require an insolvent Creditors Voluntary Liquidation.
In the last three months the price of oil has plummeted. Whilst the business/political commentators can wax lyrical about the impact on the world economy, US Soviet relations and the imminent bankruptcy of many US shale oilers, there is an immediate effect on those in the UK involved in the industry. This week BP announced cost cutting and job losses. Across the sector Capital Expenditure has been put on hold and rigs mothballed. What then is the likely effect on individuals? We are predicting a large increase in those contractors who operate through their own service company seeking help. Unlike employees, they won’t receive redundancy and notice pay.
Their contracts will just be terminated. From past experience, we know that monies put to one side to pay Corporation Tax and VAT gets dipped into to meet immediate needs such as mortgage payments and day to day expenses. The issue directors of these companies often overlook is that taking this money will normally only increase the amount they owe their company as they will have either an overdrawn loan account or have taken dividends in excess of available distributable reserves. In either case these sums are repayable. So, what do they do? If tax is due and the company is unable to pay you can still request a time to pay agreement.
The difficulty we foresee is that HMRC normally require a twelve month repayment plan. It is unlikely that in the current market contractors will be able to find work at similar rates of pay that will enable their companies to meet these requirements. In these cases they need to look at their options. (link to our contractors page). In our experience the sooner directors address the problem, the better the outcome for them. Where we are dealing with contractors, we invariably also need to consider the individual’s personal financial position. If you have no work, keeping a roof over your family’s head seems a more pressing concern than your company’s Corporation Tax liability.
If you are experiencing any of these problems, or can see them on the horizon take some advice. Lines Henry offer a free confidential helpline. Call free phone 0800012 6649 or 0161 929 1905 from mobiles for a confidential chat, or email firstname.lastname@example.org