One-man company, now at year 20, has accumulated large bank balance over time, now wishing to remain alive for couple of years in order to distribute this large surplus to single shareholder ... but, the company, although earning ZERO trading income, is in receipt of investment income on business bond and company bank balance, and currently incurring both director's salary costs, as well as admin costs servicing old clients, tying up loose ends, looking for more work, etc. .. but without earning any trading income.
The joint online web-filing offering from HMRC & Companies House doesn't allow a company with zero trading income to be anything other than dormant, in which case it can't incur losses to be carried back against earlier profits. So what to do? Can a company incur losses (which can be carried back against earlier profits) without earning any trading income? Or does a company have to "actively" trade in order to incur "allowable" losses?
I had thought of fudging this by putting in £1 fictitious turnover ........ what are your collective thoughts on this?
Thanks
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Previous posts on Aweb suggest that you can file with the joint filing product. Have a search through the forum and look for how you do it
Looking for more work
If the company is looking for more work, then it is technically still trading. The fact that it is unsuccessful in acquiring new work should not be a bar to this.
The problem you have is in proving that the company is looking for more work. If it is just a sham to try to create allowable losses then HMRC will come down hard and heavy if it attracts their attention. Is your client genuinely looking for more work and, if so, how? If you can provide evidence of the search for more work (advertising, etc) then you have a potential case. Actually getting more work would be better. You don't indicate the trade, but can small jobs been taken on to keep the trade ticking over?
Why 'a couple of years'?
Is this simply to distribute the large surplus in a tax efficient manner?
When did trading cease?
If the company has ceased trading then very few expenses incurred after the date of cessation will be able to be carried back to earlier years. The company will not be dormant as it still has sources of income but as an investment company, which is what it has now become, there is no loss relief. Only losses incurred prior to the date of cessation of trade can be relieved as such. What you will have are excess management expenses which can be carried forward.
Remember too that a company with a large cash surplus could distribute this by way of dividend, year by year, even it is a dormant company to take advantage of the lower IT rate - if entrepreneurs' relief is not available the effective rate on a dividend at 25% is less than the effective rate on a gain, 28%, if the annual exemption limit is exceeded, for a 40% taxpayer.
Evidence
I've had a few of these over the years and, in reality, if all the client is doing is biding his/her time until distribution, then Paul's posting sums it up perfectly, it has become an investment vehicle.
The question I always ask clients in this sort of position is, "if more work or another client turned up at the door, would you turn it/them away?"
If no, and they really are servicing old clients and looking for work, then get them to record phone calls, emails and other things they do, day to day, to keep the possibility of new work alive, ie in line with stepurhan's post.
If yes, then they have answered your question.