How best to handle debt with sheriff

milkion

Hi all,
We have a steadily growing business, but through various circumstances I currently have a debt of 25k with the sheriff for income tax due from previous years when we were operating as a partnership and putting earnings through my bank account. This is the result of being very poor when it came to the books etc and things just running away from us - both my business partner and I are very bad when it comes to this kind of thing. We're modest in terms of salary and our expenditure, it's just that while we should have been seeking finance, we just had the blinkers on dealing with the day to day and leaving this stuff to the last minute, and this is what's happened now (a very hard lesson learned).

Our now LTD company also have a phased payment arrangement for VAT returns, which we've been fully compliant with as well as latest VAT payments.

The bailiff strongly advised me to do everything we can to get the sheriff's debt paid off as soon as possible, because they have become ruthless with issuing seizure orders, and will act immediately if any VAT payments lapse if there's outstanding debt to the sheriff at the time. I felt he spoke quite earnestly and was speaking from experience, and it gave me a real fright.

We don't have strong cash flow and currently don't have the capital to cover this debt. However we also don't have any loans, we don't even have an overdraft. (i.e no debt other than to revenue/sheriff's office).

I'm trying to figure out the best way to handle this. As I said our business is doing well enough otherwise, revenue has grown by about 40% from 2016 to 2017. We have a big client base, a growing number of repeat monthly payments spread over many small contracts (i.e if we lose a few contracts here and there it doesn't matter), we're getting more and more repeat business, and we've just implemented new processes that are set to greatly improve our efficiency, we're also looking at other offerings that could give us a nice cash injection in early 2018.

Should we be approaching our bank for a loan? Are they unlikely to lend if it's for tax debt? Or should we just stick with a phased payment arrangement with the sheriff?

Any advice appreciated

fritzelly

We're modest in terms of salary and our expenditure

How long has this being going on, you can't be modest and owe 25k in income tax - makes me wonder are you fully tax compliant everywhere else? You could be due a full tax audit from them
Do you have staff? Are you not paying their contributions? Do you know they are responsible for non payment?
It needs to be paid! If you have a successful business then a loan should be no problem but you need to be on top of your accounts all the time all of the time
You could approach Revenue and see if you can set up a payment plan but...seeing as you have a payment plan already for tax owed...

we also don't have any loans, we don't even have an overdraft

Hardly surprising if you are not paying your taxes and using the money as a personal bank (or so it seems) - it's not your money and never was

drunkmonkey

Is the money your giving to the sheriff interest free, keep paying that way if it is any money that's not been put to use clear down that debt with it, even if it's only an extra 1000 or so every few months.

milkion

Thanks for the replies. We have been stupid to allow this to turn into the mess that it is. As far as we understand everything, we're compliant with everything else. We've to sit down with the accountant and get a much better understanding of everything. The business is only now becoming successful, there's been a lot of touch and go times throughout the past few years. That's not to say that that's an excuse for letting these expenses build as they have.

May I ask whether a bank would entertain a loan if it's to go towards tax repayment? The bailiff told me that if you're going that route (which he strongly advised we do), that it's better to be upfront with them about the reason for the loan because they will be checking revenue etc anyway before approving a loan.

drunkmonkey

What do you legally need to do I'm not saying ignore the baleiff advice but it may not be the smartest financially he just wants to see the money back as quick as possible so no surprise his advice tells you to do that.
Can you work out a payment plan with the sheriff interest free which is a lot cheaper than getting a loan.
If I was a bank I wouldn't lend you money because your more afraid of the other person you owe money to.

You need a good accountants that keeps people out of trouble and let them look after as much as possible, vat, tax, wages, holidays etc if you've staff. You get on with getting the cash flow up.

fritzelly

Problem with a payment plan is they could demand all the money at once if you fall behind on even one payment and really is no bargaining
At least with the bank they are more likely to give you some leeway if everything else is in good standing, steady cash inflow from the business etc
As the poster above, a good accountant is worth the money. He will know where you can save money, claim against etc.

milkion

fritzelly wrote: »

Problem with a payment plan is they could demand all the money at once if you fall behind on even one payment and really is no bargaining
At least with the bank they are more likely to give you some leeway if everything else is in good standing, steady cash inflow from the business etc

This is what I'm thinking as well. If things go bad with the sheriff they go very bad, worst case scenario. The interest we'd pay on a bank loan seems worth it because the extra security it allows.

A few questions if you don't mind;

What would our chances roughly be of getting a loan (off the top of your head based on info here)? How much should we seek? If we seek X but they'll only give us Y, will they offer us Y if we ask for X? Should it be an overdraft or a loan?

Thanks again, very much appreciate the advice.

karenalot

milkion wrote: »

A few questions if you don't mind;

What would our chances roughly be of getting a loan (off the top of your head based on info here)? How much should we seek? If we seek X but they'll only give us Y, will they offer us Y if we ask for X? Should it be an overdraft or a loan?

I have no idea what your chances are but when I applied for a business loan this year I was asked to provide certified accounts for the last two years to my bank - some banks request 3 years. These had to be signed off by my accountant to say my tax affairs were in order and show P&L, tax clearance cert etc.

AIB have a Personal Loan Affordabilty Calculator on their site. It’s not meant for businesses but might give you an indication of how much they would be willing to loan you if they said yes - https://aib.ie/our-products/loans/loan-calculator

bossdrum

The OP said they owe from the time they were a partnership.
They are involved with a Ltd company now.
Why would they get a business loan?
It's a personal loan they require as it's not the debt of the business.

Calahonda52

bossdrum wrote: »

The OP said they owe from the time they were a partnership.
They are involved with a Ltd company now.
Why would they get a business loan?
It's a personal loan they require as it's not the debt of the business.

While it is a personal loan, the business is key to the repayment.

The money spent getting audited accounts in place for a bank application may be better spent reducing you liabilities. These accounts could cost you 2.5/3k and the answer might be no, in fact I suspect it will be no.

The bailiff just wants an easy life so just wants you saddled with bank debt, at maybe 12% interest as opposed to his debt.
My experience is that the sheriff is flexible, as long as you honour any commitment made to him.