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To do or not to do

I have been approached by a client for one off assignment.

They had a company for 7 months. Then they struck off the company. They never received any notification for returns (may be the company was struck off in very short period). The client still holds all the books for the business and wants to complete any returns needs to be doing for that period. But as it was for about 2 years ago and they never received any notification, do we need to submit any returns?

 

I am not sure if I should call HMRC and ask about the company that does not exist anymore? If any of you had same sort of situation and have any ideas how to deal with this sort of scenario, please show me some direction.

 

Many thanks in advance.

Kind regards

 

K

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By SteveOH
06th Feb 2012 15:02

You need do nothing

If the company has been struck off the register, then it no longer exists. Technically, I think that HMRC (or indeed any other creditor) could apply to have the company reinstated but I can't see this happening.

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There may be trouble ahead

I agree with Steve, but what if it is apparent that tax should have been paid on profits but wasn't? It could put you (and I daresay your client) in a difficult position.

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10th Feb 2012 10:50

Company no more

Nothing to be done nothing to pay most Companies make a loss in the 1st year anyway either by design or actual

Cheers

Stewart

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By TOC
10th Feb 2012 12:05

Dead Company

Do nothing - the company is dead so nobody will be looking for any returns. If creditors have not been paid that is their hard luck as they should have objected to the striking off when the DS01 form was submitted. As I understand it a company can be reinstated to the register by applying to the high court but this is a very expensive process and unlikely to be worth it.

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By Tosie
10th Feb 2012 12:31

not too expensive

A company can now be re-instated without to much cost or high court involvement.

That is ofcourse assuming your client wants it back

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10th Feb 2012 12:40

Tosie is correct

It isn't that expensive to get companies restored.

I suppose it all comes down to whether the company was profitable and tax payable. If no tax liability, why bother?

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By TOC
10th Feb 2012 14:36

Why bother

The company is dead and buried so why create unnecssary work if HMRC aren't looking for returns and tax due. Tell the client this - always handy to mention possibility of an enquiry if they submit anything now as it will look odd. Let sleeping dogs lie.

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By simas
10th Feb 2012 23:17

A few thoughts...

Are they existing clients, or potential new clients?  

If existing clients, then you must abide by the Money Laundering Regulations, and so advise them of the correct procedures - if they do not follow these, then they are knowingly avoiding the legal system, and benefiting financially - as such a report is required (if this is a criminal rather than civil offense - will need some research on this point).   

If they are not clients, then these obligations are not there.

However, moving on, from an initial thought, some implications are:

1) A company must advise HMRC of trade starting within 3 months of the event - failure to do so (Form CT41G) brings with it a £100 penalty - welcome to the world of being a Limited Company (aka penalty-land...)

2) Failure to submit a CT600 return within 12 months of accounting period end attracts a £100 penalty - if this is submitted over 15 months, this rises to £200.  Tax related penalties can also be triggerred if more than 18 months late, but if this company started 31 months ago these are likely to be triggered as well... also, if unlucky, the 7 months will be over the year end, and so there may have been x2 accounting periods, and so x2 returns needed.  This could be circumnavigated by accounting period end date, but difficult if the company does not exist...

3) Did the company reimburse the directors for expenses?  If so then this may require reporting on forms P11D.  If not, then these are late, and so penalties arise... (do you see a pattern here re penalty land?)

4) Were any other monies paid to the directors?  If not supported by (if shareholders) dividend paperwork and payments pro rata with shareholdings and with a sufficient review undertaken to see if profits available (ie taking into account tax liabilities), or not supported by PAYE deductions / forms, then this must be a loan.  If this loan is more than £5,000, then interest should be paid by the director to the company in the tax year, else it is a benefit in kind.  But was this on the forms P11D which were probably not prepared?

5) Have the directors complied with their responsibilities, as laid down in company law?  If not, then creditors can go after them personally I believe...  If you are lucky, they never appointed themselves as directors, and so you escape this..., but if not, then this annuls the fact the company is dead.  I also believe that they can be pursued and fined up to £3k personally for not fulfilling their responsibilities...

6) Have monies been distributed to shareholders illegally - ie over and above the reserves? As potentially penalties arise from these points, then yes (if they emptied the company's funds) - in which case these illegal distributions can be required to be repaid (to pay the penalties).  This annuls the fact the company is dead, even if there are no directors...

7) If dividends have been paid, and the individuals need to do personal tax returns / have a personal tax liability as a result (ie higher rate tax payers) then these need to be declared to HMRC under self assessment.

8) Was their turnover above VAT registration thresholds - if so, I trust they registered accordingly, and accounted for it - if not then the amounts invoiced are deemed VAT inclusive, so that is 15%, 17.5% or 20% dependent on timing of supply...

9) Have any capital distributions had Capital Gains Tax paid on them?  And was ESC C16 applied for?  Dependent on state of shares / whether directors, any capital gain may not be eligible for Entrepreneurs relief (5% shareholding, be an employee of the company for 12 months), so the CGT rises from 10% to 18% (or 28% if HR tax payer).  Consider Annual CG Exemption on this though, if amounts less than £10k or £11k or less (if both shareholders, 50:50, then this is per person of course...).

10) Tax liabilities (if any) would incur penalties - under the new regime, I think this to be negligent in not seeking proper advice / knowing responsibilities, and so you start at 15% extra I believe.

 

Just a few issues to consider - and penalties to pay.  The good news is Companies House fines are triggered by submission of documents, so as these will not be submitted, then no penalties arise.  The above is the worse case scenario by the way!

 

Thoughts to avoid some of the above would be to have a good look at the paperwork - are sales invoices from the company - ie has the company name on them? If so it has traded.  If not disclosed, then were these actually perhaps from a sole trade?  Some of the issues above still then occur - late CT41G, amendments to self assessment returns / late filing penalties etc - but you avoid the Corporation Tax elements, and some penalties are reduced to the tax payable for tax years 2009/10 and before...

Any purchase invoices to the company could be argued to be getting the company in a position to trade, but trade not actually having started.  Then these items were "purchased" by the directors via the loan account - not trading income though, as not a trade transaction but internal. As such, benefits in kind would arrive re £5k overdrawn loan, but no trade there...  as such no trade means no CT600s due and so avoid the penalties.

 

When you consider all the potential pitfalls and penalties, the our accountancy fees suddenly look to be fairly good value in my opinion.  

 

A personal gripe, but too many clients now choose Limited Company for the tax benefits, and not for commercial reasons (ie Limited Liability).  This aside, the benefits do come with the responsibilities (and costs) but these are not always adhered to.  I have seen some Company accounts that some "accountants" produce which are shocking and just do not comply with FRSSE, but can charge ridiculously low fees as little work involved - as such the costs of running companies is mitigated, the responsibilities not met, but people get away with it -and so it seems people "have their cake and eat it".  Personally, the harder the relevant "authorities" (be it Companies House, HMRC or any other body in charge of monitoring this) come down on these, the better.  Not everyone is fit to be a director...

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