Written ByRobert Moore
Marketing Manager
Rob has over a decade of experience in web and general marketing. He has extensive knowledge of the Insolvency sector and has helped many worried directors with their questions.
Rob is now working with the Board at KSA Group Ltd to develop strategic marketing programmes to support the business plan and drive more company rescues.
Simply put, the answer is cashflow! The company does not have enough cashflow to operate properly thus wages cannot be paid.
If this is the case, it is likely that the company is insolvent. See this test to check. If you are insolvent action must be taken immediately.
Remember a company can be making profit on paper but if the money is not in the bank then cashflow problems arise. This may be short term, for example due to seasonality. However, it may also be longer term. This could be due to bad debts or a loss of large contracts. Late payments from clients could also be a factor. This means that the company will always be trying to “catch up”.
It depends on whether cashflow problems are short or long term.
If the cashflow issue is short term, explain to the staff and update them of the situation. You have got some solutions:
Ultimately, when you fail to pay your employee wages, they become a creditor. The best option here, is to speak with a licensed insolvency practitioner about the following insolvency proceedings which may be applied:
All in all, the most important thing is to communicate with employees and keep them aware. You should also be sure to get advice and seek help early on. So, talk to us to see how we can help. If you can’t pay the wages then the business is insolvent and as a director you have a duty to the creditors. Call us on 0800 970 0539 today.
Business Asset Disposal Relief
What is Business Asset Disposal Relief? Business Asset Disposal Relief which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL). Capital Gains Tax is the tax on profit when you are selling something which has increased by value. Am I eligible for the relief? To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.How do I work out the tax I will have to pay?Work out the gains of all the qualifying assets Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief Deduct any tax-free allowance You will pay 10% tax on what is left.How do I actually claim for Business Asset Disposal Relief ? To claim for Business Asset Disposal Relief fill in Section A of the Entrepreneurs’ Relief Help sheet here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.Following the first Labour Budget it has been it has been confirmed that the relief remains but from April 2025 the rate will go up to 18% from the current 10%
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Help for Struggling Businesses
Help for struggling businesses is available from charities, Government agencies and professional advisors. The most important thing is to seek advice early on before financial problems become too great
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What To Do If Your Business Or Company Is In Financial Trouble
If you’re struggling to meet debt payments and cashflow is suffering, don’t panic! There are a number of options available to help turnaround the business or company if it is in financial trouble.
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How Can I Legally Take Money Out Of My Limited Company?
When you set up your limited company, you may think you can dip into your company’s monies, as and when you like, as it is your cash! Unfortunately, this approach is wrong and can often lead to financial problems for directors of troubled companies.
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Company Insolvency in Scotland
Is there a genuine company rescue culture in Scotland? There is only one company driving the rescue culture in Scotland, and you have found it!Our firm KSA Group, who run this website, are responsible for a significant proportion of CVA led rescue work in Scotland.If you run an insolvent or struggling Scottish company the chance of rescue is low. Amazingly, less than 1% of insolvent companies are rescued by a company voluntary arrangement or CVA each year! This is compared to England and Wales, where proportionally, the CVA is used 4 times as often.So always ask your advisors these questions - What about a CVA - would that work? What is the comparison between CVA and liquidation? What is the comparison between CVA and administration?
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