Can we do this

[mt2007]

Hi guys, My partner had a business previous and sold it march last year, he has just been given a personal tax bill for £39,750. We cant afford to pay this. We have opened a joint business together which is struggling. We had one year payment holiday for a business loan (a DTI loan) and that starts in March too and the business is not making enough to pay it.

Is an IVA or bankruptcy an opetion for my partner? and would it effect me also as the new business and house are in joint names. I persoanlly was made bankrupt as a student in 2002 and discharge in 2004. Im really worried as we are really stuggling and feel with now the need to pay my partners tax bill is going to tip us over the edge and Im ocncerned I may go to prision as I have been bankrupt before?

Can anyone help?

[MelanieGiles]

Presumably the previous business was profitable to generate such a high tax bill? Does he accept that the bill is accurate and is it based upon submitted tax returns?

If you are trading in partnership, and your parter is declared bankrupt, the partnership will have to be dissolved and his share of the entity will vest in his Trustee. So this will affect you and also his share of the equity in the property will vest as well.

The day's of debtor's prisons went out with children sweeping chimneys, but an IVA will only work for you if you are generating sufficient income to pay all of your business expenses, personal living costs and a surplus of income to be able to offer to creditors. Do you think that this is feasible, and what other debts does your partners have?

[mt2007]

Hi Thank you

We only really have the (DTI loan) which was given by the bank for opening (approx £150,000) and his personal tax bill £39,500 thats the only debt really we have. If it wernt for the unexpected tax bill then we would be a lot more comfortable ie being able to keep our heads above water if that makes sense?

[MelanieGiles]

But can you afford to service both loans out of future business profits?

[mt2007]

Hi. Not sure if I get what you mean? If the payments wher spread out then I think we could tighten things up and afford the payments, its jsut the revenue wont accept a payment plan.

I have spoke to another franchisee who has said they are getting a IVA and have included there NI payments, Persoanl tax and also there DTI Loan. Is this possible?

[MelanieGiles]

An IVA will include all debts - business and personal if you are trading as a sole-trader or in partnership - but at the end of the day if HMRC hold more than 25% of the vote they are going to influence the decision at the end of the day.

What equity do you currently have in your property?

[mt2007]

Hi I think we may have about 20,000 in equity in the property?

[MelanieGiles]

Split between you equally I presume? In a bankruptcy scenario, that would not even cover the costs of the proceedings, so HMRC would not get anything back as your partner would also be without income if the partnership was dissolved.

What do you think he could afford to offer creditors on a monthly basis, and can you provide a full list of creditors with the amounts owing so I can advise further.

[mt2007]

Hi

do you mean just the busienss debts or eveything inc elec, wages etc for business and the household bills?

[MelanieGiles]

Everything that your partner is either personally or jointly and severally liable for at this point in time - so long as it is owed, rather than due to be paid as a normal ongoing trading expense.

[mt2007]

apart from general business expenses, we are dur to start paying a DTI loan of £1400 pm though the busines which is joint and then his personal tax bill of 39,700. Apart from that on the business side is general running costs etc ie stock,wages etc. We have no personal debts apart from our joint mortgage

Is this what you ment, sorry im not so good at this, but appreciate your help

[MelanieGiles]

An IVA will not work if there are only two creditors, so your best bet is to try and arrange pro-rata payments with both of them if you do not want to consider bankrutpcy. You still make no mention of the amount that you feel you could afford to offer on an ongoing basis, so it is difficult to comment further.

[mt2007]

We feel as we are on the edge we could only pay a couple of hundred a month for both. We do have money outstanding with some suppliers but not sure if that would go down as general business expenses our be inclided on an iva. we owe approx 3000 on a hair shampoo account with a supplier and also 1000 on a beauty supplier and about 2000 on NI and PAYE payments.

So from what you say is the only way forward bankcruptcy which will mean we will have to close up the existing business as it is a partnership, and also sell the house as that is joint also~?

[MelanieGiles]

Sorry - in my experience I just don't see HMRC agreeing to share such small payments with your bank. Why does your partner have such a large bill - and what happened to the profits made which generated this and the sale proceeds of the business as a matter of interest?

Could you carry on running the business as a sole trader in your own right?

[mt2007]

Hi, when he sold this business last year, previously the tx bills were £300 and £340. Therfore when he sold though the bill would be about £5,000 max. He had asked the accountant how much to save and he said he couldnt tell him until the final accounts where done. These werent prepared till the day of the tax return. Hence the unexpected amount of £30k+

When he sold the business there was approx £30,000 left over after eveything else was paid off. £20,000 was invested into our new business and £10,000 used as a deposit for our house. That was it.