Directors who have been disqualified for fraudulent or wrongful trading in insolvency, or for other reasons, are bound by the restrictions placed upon them by the Company Director Disqualification Act 1986.
Disqualification can last between 2 and 15 years. Many directors wonder what they can do in terms of working.
The fact is, no disqualified director can go on be the director of any UK registered company or an overseas company connected with the UK. Neither can they form, market or run a company or sit on the board of a charity, police authority, school or social care body. There is also a ban on practising as a solicitor, barrister or accountant. Any breach of the terms of the disqualification order can lead to a prison sentence of up to two years.
Continuing Working After Disqualification
It is however still possible for most ex-directors to carry on working in some way. If there is a wish to continue running a business, then setting up as a sole trader is an option, as the restrictions laid down by the Company Director Disqualification Act only apply to the forming, running and marketing of limited companies and limited liability partnerships.
Setting up as a sole trader will of course require a degree of reorganisation. Tax and legal implications will come into play, so it is essential to take professional advice. Here are the main differences:
Remuneration and tax
Before: As a director you were paid through a salary and dividends. Corporation Tax and dividend tax applied. Now as a sole trader, you will keep your earnings which will be subject to tax on a Self-Assessment basis.
As a director, you enjoyed freedom from personal liability for company debts and negligence. As a sole trader however you will face unlimited personal liability, which means your personal assets could be called upon to settle any debts connected with the business or partnership.
The Importance of Expert Advice
If you have been disqualified as a director and want to carry on trading in the sector that you know, it is vital to exercise due consideration when restructuring your business. Always bear in mind that a breach of the terms your disqualification order could land you with a custodial sentence.
It is therefore wise to seek advice from an accountant who will be able to guide you on the right way to proceed. They will also be able to make certain you are following the right guidelines when it comes to tax and filing commitments.
Why not make your first port of call your local bookkeepers? They can help you with a general overview of your obligations as a sole trader and how these will differ from your previous role as a director. They can then introduce you to an accountant for the full guidance you need.