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Dormant Company - even with bank movements?

This question relates to small UK Ltd companies.

If a non-trading (dormant from birth) company has movements in/out of it's bank account that zero out and are all balanced by movements on the inter-company account with a related company (same owner, same director) and no income (including interest) or expenses of any kind such that it has nothing to record on the profit & loss account or on the balance sheet at year end, then

1. Is this company dormant?

2. If the (small company, abbreviated) accounts are simple to prepare (in this case, mostly zero entries) what is the advantage of being a dormant company? What are the ramifications of being non-dormant and therefore trading, but with no revenue and no costs and no assets and no liabilities?

3. Are there HMRC rules/guidelines governing the use and recording of an inter-company account (I assume that this is treated like a phantom bank account in the accounts of each company)

Many thanks for your help

 

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29th Nov 2012 12:05

Look at

the Companies House definition.  Booklet GP2 Chapter 8.  The fact that they zero out is irrelevant as surely they must be recorded in the company's books.

 

1. What is a dormant company?
A company is dormant if it has had no 'significant accounting transactions' during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records.
When determining whether a company is dormant you can disregard the following transactions:

payment for shares taken by subscribers to the memorandum of association;

fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and

payment of a civil penalty for late filing of accounts.

 

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By JAADAMS
29th Nov 2012 12:24

Covered in my article...

http://www.accountingweb.co.uk/article/dormant-companies-get-details-right/520788 

Dormant Companies - Get the details right

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avatar
By oleggio
29th Nov 2012 17:40

OK, imagine this...
First of all, thank you Cloudcounter and Jennifer. I had already read Jennifer's article however and I still feel that my specific issue is in a grey area (or maybe it's just grey in my head). It seems to me that under HMRC's definition the company would continue to be dormant. Companies House definition is different and refers to "significant accounting transactions". It seems to me that if the only transactions are to move funds back and forth between the bank account and the inter-company account, leaving both at zero at year end then perhaps there is no significant accounting transaction.

Thought experiment....

How about a dormant company with 2 non-interest bearing bank accounts and the only transaction is to move funds from one account to the other and back again. Is this a significant accounting transaction? If not, how is this different to my example (moving funds from inter-company account and back again)

In any event I'd welcome any comments also on my follow-up questions 2 and 3 if anyone has any thoughts.

Once again, many thanks for the input.

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29th Nov 2012 18:20

Accept reality

"It seems to me that under HMRC's definition the company would continue to be dormant. Companies House definition is different and refers to "significant accounting transactions". It seems to me that if the only transactions are to move funds back and forth between the bank account and the inter-company account, leaving both at zero at year end then perhaps there is no significant accounting transaction."

HMRC doesn't have a concept of dormant. They are concerned about whether it is trading.

Companies House's definition obviously shows that the company is not dormant.

Accept reality and move on.

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29th Nov 2012 18:25

It's easy

"2. If the (small company, abbreviated) accounts are simple to prepare (in this case, mostly zero entries) what is the advantage of being a dormant company? What are the ramifications of being non-dormant and therefore trading, but with no revenue and no costs and no assets and no liabilities?"

If a company is dormant it is easier to prepare accounts.

If a company is not dormant then proper accounts have to be prepared.

"3. Are there HMRC rules/guidelines governing the use and recording of an inter-company account (I assume that this is treated like a phantom bank account in the accounts of each company)"

Normal accounting rules need to be applied.

Treat intercompany accounts as intercompany accounts and not "phantom bank accounts".

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