Seeking bank loan to cover sheriff debt

milkion

Hi all,
I asked this in the taxation forum but thought it'd be worth asking here.

Does anyone know what the viability is of seeking a business loan to cover sheriff debt of unpaid income tax is? The bailiff strongly advised me to get the debt away from the sheriff asap because they are ruthless now when it comes to shutting down businesses.

Our business otherwise is actually doing quite well, a growth of revenue of about 40% between 2016 and 2017 and we have a steadily growing base of repeat monthly payments.

fwiw we've never sought a loan/financing before and don't even have an overdraft. We just don't have the cash flow to cover this (or would barely just), but a lapsed payment would see the sheriff at the door which would probably mean game over for us.

The bailiff said that it's best to be upfront when approaching a bank for a loan about what the purpose of it is for, because they will check if we have outstanding payments to revenue and will assume we're deceiving them if we apply for the loan for any other purpose.

Advice appreciated

sysprogrammer

Ahh, Finally I am good for something ! I had the Sheriff call to my door years ago.

The Sheriff is actually quite reasonable. I was out when he called to see my parents and he left his contact details and some helpful advice.

I then asked my accountant to get in touch and agree a payment scheme.

They (kindly) froze any further interest accruing on my debt.

My initial fears and worries were way overblown , and perhaps the stress I gave myself..

Suffice to say , I agreed a payment plan that was within my means (2k a month , I have no kids and business is actually good).

And now I am out the other side, business is still good , and I often say to people that Revenue have excellent customer service.

Can I advise you to seek a good accountant with regard to this debt , it really presents a serious professional front to Revenue, and shows you are true to your word about repayment.

Feel free to contact me via pm , my accountant worked in Revenue for 12 years which really helped.

The main point I am trying to make is don;t stress yourself , don't borrow further to pay this debt and please keep yourself ticking over with regard to business. you will be okay.

I have xmas drinks this evening so a reply might be somewhat delayed.

Take care,
Sysprog

milkion

Thanks for the reply. It's terribly worrying alright, but it's our own fault we allowed it to get to this point so not expecting any sympathy but it's nice to hear from someone who was in a similar situation that it turned out okay for.

Unfortunately the bailiff said that attitudes have changed recently from the top down as regards how lenient sheriffs and bailiffs can and should be. Maybe it was scare tactics, but he did seem genuine.

His explicit advice was that the last person you should owe money to was the sheriff because of the fallout of lapsed payment, and even an arrangement with the sheriff can be overruled by revenue and warrants reissued.

The risk factor sounds too high with the sheriff, whereas an arrangement with a bank could be much less pressure and risk, if we were successful in obtaining a loan that is.

BnB

It is a good few years ago (nearly 10) but we had the opposite experience with Revenue than sysprogrammer.

We were sending in VAT or P30 returns (can't remember which it was at the time) and we were short about 10k to pay. However we were due to be paid a large invoice from a Government Agency (so rock solid) in about 6 weeks and would be able to pay it then. We included a note with our returns to explain this to Revenue.... and in return they sent in the Sherriff.

I took a huge dislike to the Sherriff. Him calling to our door changed nothing at all (We still paid Revenue in full in 6 weeks when we got the money) except - Now we also had to pay about 1000 to the Sherriff as well for his fees - For him calling to our door one day for 10 minutes (to try and bully his fees out of us under the guise of giving us "good advice").

It really really really p1ssed me off at the time and (as you probably can tell) still does to this day. I took a huge personal dislike to the Sherriff. He was a real arm around the shoulder best pal charmer but all he really wanted to do was get his fee off us as soon as possible. He actually advised us at the time to not pay our monthly wages (which would of course have closed the business) and pay him instead.... and we very nearly did.

Be very very very careful of taking advice from the Sherriff or the Bailiff. His advice is what is best for him - Not you. He doesn't care what you do as long as you pay him as soon as possible. He couldn't give two shoites if you crippled your business. Then he can get his easy fee off you, wash his hands, and move on.

Sysprogrammer's advice is good - I would go to a good accountant and get true independent advice from them. I would also agree 100% with SYS - Don't stress - If business is good and you don't have any other current debts then there are plenty of options available to you to pay this debt off. It is only a matter of choosing the one that is right for you and your business.

Best of luck and don't stress - Get some advice and sort it out.... but don't stress it

scwazrh

You mention income tax and also "shutting down business" . If you owe income tax I would assume your a sole trader in which case the sheriff cannot shut your business down as the business is you personally but they can remove your goods which you may need to carry out your business.If you are a limited company they can shut the business and they have recently become a lot more pro active in winding up companies.

In my experience the first item banks always ask for when we ask for a loan is if we have tax clearance cert.As a limited company borrowing money with the sheriff breathing down your neck would , I imagine , be a risky deal for the bank.If a sole trader the bank would usually lend on repayment ability as opposed to what you will use the money for .

milkion

scwazrh wrote: »

You mention income tax and also "shutting down business" . If you owe income tax I would assume your a sole trader in which case the sheriff cannot shut your business down as the business is you personally but they can remove your goods which you may need to carry out your business.If you are a limited company they can shut the business and they have recently become a lot more pro active in winding up companies.

In my experience the first item banks always ask for when we ask for a loan is if we have tax clearance cert.As a limited company borrowing money with the sheriff breathing down your neck would , I imagine , be a risky deal for the bank.If a sole trader the bank would usually lend on repayment ability as opposed to what you will use the money for .

Hi thanks for the reply. The income tax is from when the business was operating as a partnership. The business is now a Ltd company.

When you say they've become a lot more pro active in winding up companies, do you mean this as a reinforcement of what I was saying were the views/advice of the bailiff? I was hoping it was just a scare tactic as others have described it from their experiences, but the bailiff did say that they are now more aggressive and close businesses without much leniency at all.

I've heard elsewhere that they look for a tax clearance cert alright, but maybe in this case since we'd be seeking the loan to cover a sheriff's debt they'd realise that one wasn't available in any case.

Do you think they'd apply the same level of scepticism if we were to ask for an overdraft?

scwazrh

milkion wrote: »

Hi thanks for the reply. The income tax is from when the business was operating as a partnership. The business is now a Ltd company.

Is the tax demand in you're partnership name ie Mr John Hancock & Mrs Jo Bloggs T/A Acme or is the tax demand addressed to Acme Ltd? The tax debts from a partnership cannot carry over to a limited company

milkion

scwazrh wrote: »

Is the tax demand in you're partnership name ie Mr John Hancock & Mrs Jo Bloggs T/A Acme or is the tax demand addressed to Acme Ltd? The tax debts from a partnership cannot carry over to a limited company

The former, a personal name.

scwazrh

As its you're personal name the limited company is legally not responsible for the debt and as such cannot be wound up by the sheriff for the debt .

milkion

scwazrh wrote: »

As its you're personal name the limited company is legally not responsible for the debt and as such cannot be wound up by the sheriff for the debt .

That's good to know. With the debt being associated with one of two directors, can assets belonging to the LTD company be seized or anything to that effect?

The bailiff said that this was the case - he knew that I was associated with the Ltd company and said that they could go in and strip it if the debt wasn't paid.

fritzelly

Assets belong to the company in a LTD not to a person

If you don't pay and are made bankrupt then you can't legally be a director of a LTD business (I'm pretty sure at least)

scwazrh

A director of a limited company cannot use company assets to offset personal debts whether they agree to it or not.Its against company law. So what the bailiff has told you is simply wrong .If we where discussing Celtic tiger style side stepping of global assets transferring from limited companies into related individuals , then there would be problems but I assume thats not the case here .

Depending on the size of the debt , usually the best value option is to request an interest freeze and offer to pay the debt over 24 months.They usually respond with 9-12 months is max time frame for repayments but I have seen them agree 18 month plan.They will charge the sheriff fees no matter what happens so best to view that part as your "lending cost" and no point in going to the bank and paying more fees to borrow the money to pay the tax debt and sheriff fees.

Also important to consider the size of the debt and value of your available cash assets .

milkion

Thanks. The debt is 25k as it stands. Salaries are modest and there wouldn't be the means to pay this personally at all. We would look at increasing salary to cover a phased payment of hopefully 18+ months.

This would result in serious cash flow issues, hence the question regarding seeking a loan.

scwazrh

The sheriff will look at you're personal assets so if you've a lease free vehicle or similar they will go after it .

You will have to pay it personally as its not the companies debt.Increasing salary to cover the payment is still you personally paying it as the money will come out of the company as a wage to you and you will pay the tax from your net earnings.If you have good credit rating personally go for a bank loan but don't mention the sherif ,the bank won't be aware of your tax problems as its early days.They will ask about you're income so submit your payslips for same and provided you can afford the repayments you should be fine.

milkion

scwazrh wrote: »

The sheriff will look at you're personal assets so if you've a lease free vehicle or similar they will go after it .

You will have to pay it personally as its not the companies debt.Increasing salary to cover the payment is still you personally paying it as the money will come out of the company as a wage to you and you will pay the tax from your net earnings.If you have good credit rating personally go for a bank loan but don't mention the sherif ,the bank won't be aware of your tax problems as its early days.They will ask about you're income so submit your payslips for same and provided you can afford the repayments you should be fine.

I don't have any assets personally and have never sought a loan before. What kind of loan could I expect do you think?

Do you think it'd be better to pay it off in one lump sum (if possible) or spread it out as long as possible?

Also, do you know whether this will seriously damage my credit rating, chances to get a mortgage in the future etc?

Thanks again

scwazrh

Without knowing your finacial position , I couldn't guess at the loan available to you.

For cash flow purposes the longer you get to pay it off the better.If interest is being added , the quicker you pay it the cheaper it will be.

Provided the sheriff doesn't take you to court, no agreement with them will be noted on the ICB credit system

milkion

Good to know again, thank you. I relayed a lot of what the bailiff said to my accountant, and he didn't provide any of the contradicting info that you're saying (i.e assets can't be seized from a Ltd company for recouping a director's income tax etc).

I'm not going to see him until Monday so to save me some of the worry between now and then do you think there are parts of this I haven't covered here, which my accountant would be aware of which is why he didn't provide that reassurance in respect to that outcome? Hopefully not. I know that all assets in the premises do belong to the LTD company in any case.

You've been a big help, thanks very much.

fritzelly

milkion wrote: »

I know that all assets in the premises do belong to the LTD company in any case.

Do you have proof of that?

Ginger83

scwazrh wrote: »

The sheriff will look at you're personal assets so if you've a lease free vehicle or similar they will go after it .

You will have to pay it personally as its not the companies debt.Increasing salary to cover the payment is still you personally paying it as the money will come out of the company as a wage to you and you will pay the tax from your net earnings.If you have good credit rating personally go for a bank loan but don't mention the sherif ,the bank won't be aware of your tax problems as its early days.They will ask about you're income so submit your payslips for same and provided you can afford the repayments you should be fine.

What if a car was for disabled use?

fritzelly

Ginger83 wrote: »

What if a car was for disabled use?

Wouldn't matter - its a luxury item

mrawkward

The sheriff is only a collection agent, you owe the money to the Revenue. The sheriff just wants his fees. You might be wise to pay him now to take the immediate heat out of the situation, ask your accountant.
If the tax underpaid is €25k there will also be penalties and interest due on top. Do you know the actual total owed?
The partners are jointly and severally liable for all debts of the partnership. The debt has nothing to do with the Ltd company and it taking/making loans for the benefit of the directors could well be illegal depending on the specific circumstances.
No bank ever ever lends money to pay taxes.

milkion

The amount was 22k, fees brought it to 30k and a payment of 5k has already been made.

No bank ever ever lends money to pay taxes.

Are there any other options?

mrawkward

milkion wrote: »

The amount was 22k, fees brought it to 30k and a payment of 5k has already been made.



Are there any other options?

Family?

Or do an instalment deal with Revenue set up and arranged by your accountant

milkion

mrawkward wrote: »

Family?

Or do an instalment deal with Revenue set up and arranged by your accountant

What kind of instalment arrangement can I expect for that amount? 24 months?

I don't think family is an option unfortunately.

mrawkward

that will depend on your ability to pay/affordability... Revenue officials are generally smart and quite pragmatic.. they know you cant get feathers from a frog...the less you have the more amenable they will be!! Where are the other partners in all of this?

milkion

mrawkward wrote: »

that will depend on your ability to pay/affordability... Revenue officials are generally smart and quite pragmatic.. they know you cant get feathers from a frog...the less you have the more amenable they will be!! Where are the other partners in all of this?

Even with a term of 24 months the repayments would be very difficult to make without sourcing capital somewhere.

The other partner is on the scene and is involved in trying to figure out a resolution to this.

mrawkward

it would strike me that the first step would be to get a debt split agreement from revenue and then work out a deal on your bit...ability and willingness to pay will find a way/term!

milkion

mrawkward wrote: »

it would strike me that the first step would be to get a debt split agreement from revenue and then work out a deal on your bit...ability and willingness to pay will find a way/term!

Assuming that the debt won't change, would you say it'd be better to seek a personal loan or see if revenue would stretch this out for a much longer duration for me?

mrawkward

I am saying get agreement to limit your liability to half of the debt and the same for your former partner. Then deal with your half...I would say the only lender in town is the revenue themselves!!

milkion

Revenue have already determined an evaluation of my partner's debt and there's a payment plan in place for that (without having gone to the sheriff) as he had more capital available to pay the downpayment they sought, whereas I didn't.

My portion is not just "my" income tax however, it's from partnership business money going in and out of my bank account and the books not being 100% and me (probably naively) offering to take full responsibility for that while his was based purely on his salary (i.e payments from my account to his).

Nobody is throwing blame around here though and we're trying to work together to resolve this.

mrawkward

You should consider a Personal Insolvency Plan so but you need to get decent professional advice to make the best choice. Far too many specific factors that are totally inappropriate to deal with on here.