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Dissolving a Limited Company using DS01 (section 1003 Companies Act 2006)

I have a client with a 30 April year end who is looking to wind up the company. This is an area that I am not that familiar with, but do have a certain amount of knowledge, so I just wanted to clarify some points. The company has been running for around 2 years but has never made a profit, and as a result has negative reserves. It is ower managed and has continued to run only because the directors have been pumping personal funds in through the directors loan accounts. In terms of size it is tiny (around £10k turnover last year and probably less this year, although I havn't seen the figures yet. Last years balance sheet was negative - around £5k. Share capital £100.). I don't think the individuals that started it up have any real business competence, and are looking to move back into employment, having had an extremely rough time. I have been told (although as yet I have been unable to confirm as I have not compiled the accounts) that the business has no creditors, therefore a section 1003 dissolution should be possible. There are however a couple of points I want to be clear on:

1, In order to apply for dissolution the company has to cease commercial activity for 3 months. Realistically, that would take say a month (probably less) to cancel all items (insurance, telehone etc). This would take the start of its dormant period to the end of April/beginning of May. Companies House do not chase compliance once a DS01 has been received, however hmrc will be looking for tax returns (and cessation accounts). Would it therefore make sense to extend the accounting period to say 15 months to avoid having to compile 2 sets of accounts? (I know you would still need 2 CT600's, but I'm just thinking this would reduce the work load).

2, The company has a small amount of assets (mixture of cash and some equipment eg, computer, vehicle). There are also directors loan accounts, although I expect the value of these will be less than the value of the assets of the company. Once everything else has been paid (any tax, my fees, companies house etc), it is likely that the remaining items will be the equipment. If the directors decide to retain any of these items rather than sell them, then obviously, there is the option to extract items using the former Esc 16 concession (I doubt the value of the assets would even exceed the £10600 capital gains exemption, let alone the £25,000 limit). Would I however, have the option to write off some of the assets against the directors loan accounts (if positive balances are left) to try and preserve as much of the annual exemption as possible? I don't think they are likely to have any further capital gains this year, but it makes sense to plan ahead just in case.

3, With regard to applying for the new Esc 16, is the application procedure still the same? ie, do you still need to write a letter to HMRC, or is there now a form that needs to be completed, since the concession has become statutory?

4, Further, in relation to Esc 16. The company has negative reserves, which means it can't pay a dividend. Does this mean that Esc 16 is not possible, and if it is, is the dividend just processed as a normal one through the cessation accounts?

5, With regard to informing HMRC for CT purposes, my understanding is that they need a letter plus a copy of the form DS01 sent to Companies House. My understanding is that the letter is sent when the company ceases to trade - which results in a CT600 being due for this period end. A further CT600 will be due for the period between when trade ceases, and the date the company is dissolved (which will be later than the date the DS01 is sent out). Please correct me if I am wrong on this.

6, No action is needed re the share capital (£100), since it is below the limit that the treasury have set for waiving bona vacantia (£4000).

I appreciate these are probably stupid questions, but it is an area that I have relatively little experience of, so I just want to be sure. In advance, I already know that if it is insolvent, it has to go to a licenced insolvency practitioner, but my understanding from the client at present is that there isn't much left and everyone will be paid.

Thank you in advance.

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By zebaa
04th Apr 2012 13:25

Why?

Why do this for a tiny company with no debts (except to directors) and a negative balance sheet? Tell them - stop now. Go find (paid) jobs. In my opinion you have a duty to advise what is the best best course of action, forcefully, if need be & DS01 is not it.

Simply, repay directors as much as possible,  stop trading, then the directors resign. In time the company will be struck off after the usual warning letters and threats. They have no further losses. They move on.

 

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04th Apr 2012 14:49

I would wait a little, I had a similar situation with a client who did not like employment so restarted the business, fortunately they had the company to jump back into and utilise the losses b/fwd.

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By zebaa
04th Apr 2012 15:38

Wait = more losses?

My reservation about waiting is that further losses may be mounting up. By all means gather whatever information is required to form an opinion, but do it as soon as possible. Clearly in the case of James client  there was not 2 years of ongoing losses with little hope of profit.

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04th Apr 2012 16:08

My view, is that they should shut it down (I have already told them this a while back and they have had chance to think about it and review other options).

As far as shutting the company down though, I've just had some advice from a former work collegue. Ignoring Companies House/HMRC will eventually shut down the company, but, theoretically penalties will be levied against the directors themselves, and this could result in them being disqualified.

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By zebaa
04th Apr 2012 18:16

Further coment

@ FP....

Ignoring Companies House/HMRC will eventually shut down the company, but, theoretically penalties will be levied against the directors themselves, and this could result in them being disqualified.

End Quote

That is why I suggest the directors resign, but it may be me being over-cautious. In many, many cases companies simply stop trading, often because they run out of money or suppliers refuse to extend credit further. In these cases nobody is willing to wind the company up as it will cost money & they will get little or nothing in return. In the same way if they (the directors) wind the company up it will cost them. That's just crazy, especially for guys that have made nothing for two years.

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By JAADAMS
04th Apr 2012 16:40

Read this article on Co House striking off etc

 

http://www.accountingweb.co.uk/article/striking-company-get-details-right/521385 

The practicalities of closing down a company are covered in my article on a 'checklist' basis as per this link above.

And this is the 'tag' for discussion about ESC 16

http://www.accountingweb.co.uk/category/tags/bona-vacantia 

I think you'll find what you need to know here.

 

 

 

 

 

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By zebaa
04th Apr 2012 18:18

Further comment 2

@JA...

I think you are missing the point of my position. In a case like this do not dissolve the company. Why throw good money after bad?

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By cfield
05th Apr 2012 00:58

But it only costs £10

What's all this hand-wringing about the costs of dissolving the company? It only costs £10 to file a DS01. To me that seems by far the easiest option.

I know Companies House would eventually dissolve it anyway for free, but not until after sending loads of letters threatening the directors with legal action. Save yourself the stress and do it now.

As someone pointed out, the directors could be prosecuted for failing to file accounts or returns. I know they never are, but why take the risk?

As for HMRC, you just need to tell them the company has ceased trading and they won't bother you again once the final corporation tax return has been filed. No need to worry about the successor to ESC C16. That's only relevant if the company has retained profits.

You don't even need to file on iXBRL if a company is in the process of being dissolved. Just send them a paper CT600 with a one-page P&L and a covering letter. I know they only allowed that last year to avoid delays whilst we were waiting for them to update their system with the new tax rates, but once the company is dissolved, they can't demand any more returns anyway.

The losses could be handy if they ever do start trading again, but you've got the hassle of filing dormant accounts in the meantime and possibly accountancy fees, so on balance probably best for the directors to wash their hands of it.

Obviously no dividend if the company is insolvent. Just repay the loans with whatever cash is left, write-off the balance and use them as capital losses against any future gains the directors might make that exceed their annual CGT exemption.

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By zebaa
05th Apr 2012 16:02

No, it does not.

This issue is not the £10 to file a DS01, it is the added cost of paying some one to take the company down that route. This is not DIY. The directors will have to pay to have accounts produced - and don't forget this is a loss making company. Rule one in a case like this: stop making losses.

As regard risk of being prosecuted - in this case it is nil. The accounts are not overdue at the date of business failure. I pose a question. Where have you seen a prosecution for failure to file AFTER the date of business ceasing? Again, I point to my earlier post where I suggest the directors resign to cover themselves.

Writing to HMRC is a waste of time. They usually ask for final accounts, which to labour my point, if the company has neither money, directors or any trade they are just not going to get. My further suggestion is that the ex-directors return unopened any letters sent to the company (it is not addressed to them & they should not open or reply to such letters).

In summary, DS01 will add cost and may also delay what should have already happened. The company should cease trading sooner rather than later (see Rule 1 above).

 

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By BKD
10th Apr 2012 17:05

Accounts?

zebaa wrote:

This issue is not the £10 to file a DS01, it is the added cost of paying some one to take the company down that route. This is not DIY. The directors will have to pay to have accounts produced

File a DS01 and Cos House will stop asking for accounts and annual returns

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By cfield
05th Apr 2012 16:56

Beg to differ

Ignoring letters from HMRC or Companies House is not the kind of advice a professional accountant should be giving. And that will only happen when the accounts and tax returns become overdue (and if the DS01 process is not under way), so in theory there is still a risk of prosecution, even if just a negligible one.

It's probably more hassle to send in the forms resigning as directors than to file a DS01, as then Companies House will ask who the new directors are.

In a case like this, I really don't see why you need to pay someone else to file a DS01. Companies house will not need accounts and neither will HMRC if you write and tell them the company has ceased trading and no tax is due.

To me, you're just asking for trouble ignoring the taxman. Just write a simple letter and get them off your back. Is it really necessary to pay someone a fat fee just for that simple task?

Once the company is dissolved, then they cannot take any further action anyway. I can hardly think of a more straightforward case.

I agree the company should cease trading if it is making losses. That's just basic business sense, and it's illegal to trade anyway if a company is insolvent and cannot pay its debts.

 

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10th Apr 2012 12:56

People have given this sort of advice before and it hasn't worked.

http://www.accountingweb.co.uk/anyanswers/closing-down-limited-company

In that previous case, someone sent them a letter to HMRC and HMRC responded saying "fine, subject to receipt of CT600".

My view is that if they want to avoid the risk of fines, prosecution, and disqualification they go through me and pay me. If they do use my services, then I do it by the book, as personally, I have no desire to have someone come back later trying to blambe it on me if it goes wrong. What they are paying for is to ensure that the job is done in a way that secures their long term interests.

If they don't want to do that after I have told them the risks, that is their decision and they do so at their own risk. I'm certainly not going to hide how some individuals approach this, but I will tell them about the potential consequences. Once they know this, it's their company and if they want to take risks, that is their decision. On their own heads be it. The one thing I will not however do, is something that could land me in court for a professional negligence claim at a later date.

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By zebaa
10th Apr 2012 15:25

Either way will work and which ever way is chosen it will be done 'by the book' because companies house are not going to do anything illegal. To infer to the directors that they run various risks flies in the face of practice in the real world.

Revue what you said:

I don't think the individuals that started it up have any real business competence...

The company has been running for around 2 years but has never made a profit...

In terms of size it is tiny around £10k turnover last year and probably less this year...

Last years balance sheet was negative - around £5k...

In other words the directors don't have much of a clue and are in a hole and are looking to you to give advice.

Then:

(a) This an area that I have relatively little experience of

(b) I already know that if it is insolvent, it has to go to a licenced insolvency practitioner

As regards (a) I suggest you do whatever you think correct, but also suggest you may be best not advising given your lack of experience.

As regards (b) that's just plain wrong.

 

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By zebaa
10th Apr 2012 18:17

@BDK

Quote

File a DS01 and Cos House will stop asking for accounts and annual returns.

Answer. But HMRC will demand them.

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By BKD
10th Apr 2012 20:10

HMRC

zebaa wrote:

Quote

File a DS01 and Cos House will stop asking for accounts and annual returns.

Answer. But HMRC will demand them.

And HMRC can be told to go and whistle. In the circumstances, they will almost certainly accept nothing more than a covering letter and a fag-packet calculation.

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By cfield
10th Apr 2012 22:45

Expensive way to do sums though

Cigarettes are quite expensive now. It would be cheaper to use the finest Conqueror paper than the back of a fag packet.

But BKD is right though. Like I said about 8 posts ago, HMRC will not insist on full accounts. A one-page P&L will do. They probably wouldn't even insist on iXBRL.

If no tax is at stake, they would simply close their file on the company and the directors would spare themselves the aggro of all those official letters.

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