I have two former holding companies within our UK group of companies. One has a bank account whose only transaction this year are bank charges (audit letter fee), the other has no bank account but if we pay a dividend it must flow in and then out of the company, there are no other transactions.
The group is ultimately owed by a family who, like me, want to minimise unnecessary compliance costs. They would be willing to sanction no audit, but per the accounting definition quoted to me by ICAEW and our audit partner (who wants to protect the £1500 he charges us for auditing 6 journal entries!) there are "significant" transactions going through and so as they are ultimately part of a large EU group then they must be audited. Is there anything in UK law for the shareholders to elect for no audit. We do not wish to close the companies as we wish to protect the names, nor at this satge do we wish to do any group restructuring . The HMRC considers them dormant so we do not have to file a tax return for these.
Also is there a company out there which will do the ixbrl tagging for these 6 page accounts for a lower price than the main set of accounts which has 29 pages! My lowest quote so far is £400 per set.
Replies (12)
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You could do a group re-organisation, stopping one of them from being an intermediate holding company and closing the bank account for the other. Then they would (probably) meet the definition of dormant and no-longer require an audit.
Resolve it
Can't you just pass a resolution stating that the members do not require an audit?
Sorry No Prawncob
S479 CA2006 all group companies need an audit unless:
Group is small or
Company is Dormant
Make sure they are both dormant.
I believe gross dividends flowing in and out are OK for dormancy but the bank account has to go.
Chris - I believe you are
Chris - I believe you are incorrect with regard to dividends - see CA2006 s.1169 -
http://www.legislation.gov.uk/ukpga/2006/46/section/1169
A bank account may actually be OK, so long as there is no interest or bank charges.
Yes I am aware of 1169
Question is if dividends never touch a company bank account but go straight from subsid to holding is this transaction required to be entered by S386.
Yes, of course they are - the company has made a profit for the year. And even when the actual payment is from the subsidiary to holding (which must be receiving the money on behalf of the intermediate company and then released from its liquidated liability), the intermediate company must still produce Relevant Accounts to declare its own dividend.
I agree really
I have heard some clever lads from the larger firms advance the line I was suggesting on the grounds that the dividends passing through did not create a S386 event. The complete lack of support on here would indicate that expensive lawyers would be necessary!
Are you sure that there is nothing you can do by way of reorganising, hiving up and down, without incurring legal fees.
I would also put the squeeze on the audit firm, though they and you will no doubt both be looking at the cost of the whole group in aggregate.
I have to say that's really not a line I'd be comfortable with! I think that not recording a dividend received and paid would cause the accounting records to fail (at the very least) under parts (a) and (c) of clause 2 of S. 386.
The accounting records requirements are incredibly important - but it's amazing how many, even relatively large, businesses fall down on them.
Agency?
I've previously mused on a thought that if an agency agreement were established between the subsidiary company and the parent company whereby the sub is paying dividends directly to the shareholders, and maintaining the pertinent records on behalf of itself and the parent, this might strengthen an argument on the holding co being dormant. It would also enable the bank accounts to be closed. Still wouldn't be 100% on it, but it does feel a bit odd that there should be no relaxation for a situation such as this.
As for your fee question, my impression is that alot the iXbrl work will be loaded in the first year so perhaps if you offered a 3 year agreement you could get a discount from that best rate?
That is an interesting point, but I feel it would still fall down for the following reasons, and also potentially have tax consequences:
1) Distribution is defined in CA2006 s.829 as "distribution of a company's assets to its members, whether in cash or otherwise". If the sub is distributing from itself to the members of its parent, that falls down - and the payment cannot be described as a distribution (and presumably therefore dividend).
2) Relevant accounts, as above. For the intermediate company to declare a distribution to its members, it must have relevant accounts. Also, ICAEW guidance is, I believe, that creation of an inter-company asset due to a dividend being declared by a sub does not result in distributable profits (as they are not yet realised).