Dormant companies: Get the details right

I thought this was a really useful article. Concise and well written. Thanks. I have saved it for future reference.

Amen!

I have saved it too.

Really useful and clear. My thanks to the author.

thank you

Clear, concise, no waffle - much appreciated. My thanks to the author for his efforts and for bringing these differences to my attention.

Please accept my apologies Jennifer - don't know where that "his" came from! :-)

Great article!

Just one point: it is unlikely that a company holding the freehold will be dormant. This is because ownership of the freehold usually brings an income in the form of a ground rent. Even though the ground rent may be peppercorn, or in any case be very small, it is still income that should be recorded in an income statement. The reserves shown on the company's balance sheet may also change from year to year as a consequence.

Thanks to the author!

A question:

my client got an Acknowlogement letter of dormant company from HMRC which he never told HMRC that the company is dormant( in fact the company is dormant), I can think of two possible reasons:

1, the company filed Annual Return to the Companies House which shows it's dormant, the information forwarded to HMRC.

2, the HMRC never heard from the company after sent out the CT41G,

but if the 2nd case the HMRC also can send pnalty notice if they not heard from the company after 24 months i.e. the normal tax return deadline.

does anyone knows why the HMRC send these Acknologement letter of Dormant company?

thanks

Would a dormant holding company that received a dividend from its 100% owned sub, and crucially did not pay out this dividend out in full, be automatically considered an associate of the sub for CT purposes?

Many remark that Companies House remind them that their role is merely to have up to date information.  Consequently, anyone who has incorrectly filed dormant (or any other) accounts in the past but where current correct accounts have been filed can leave things as they are.

This was demonstrated recently where I came across a company which had filed dormant accounts for it's first 3 years of existance.  Six months later it filed amending accounts for the 3rd year, showing substantial trading activities and with comparative figures that indicated trading in year two.  I subsequently came across a company cheque for £500 made out 2 month's after incorporation.

I am now on my third attempt to get Companies House to even query any of this with the company, including why the various statements required to appear on amending accounts are nowhere to be seen.

I have no doubt that HMRC will only have seen year 3 MKll

This is not an isolated incident and it does make me wonder why we bother to learn & practice all this stuff.

@Matthew Pratt - the answer to your question is probably not but maybe! Have a read of CTM03590, 'Non-Trading Holding Companies' secton at the bottom of the page which refers to SP5/94 which is now enacted as CTAs2010 s25 and 26. In particular s26 is relevant to your question. [Shame the manual isn't yet updated.]

Actually I live in a block of flats where the company scenario is as Jennifer suggests. The flatowners are the shareholders, the Freehold is owned by a dormant company and there is no ground rent.The management fees go to a separate company.

I too live in a block of flats and am a shareholder in the freeholding company. Based on legal advice, we distinguish ground rents from service charge income. The former is recorded in the freeholding company's accounts (and hence it can not be a  dormant company) because the company has absolute title to these amounts. The latter is not accounted for in the freeholding company's accounts and are held in trust for the benefit of the lessees so that the freeholding company  has no absolute title. I am surprised to hear of a freehold for which no entitlement to ground rent exists.

It was my understanding that the ground rent (and other charges perhaps) derive from a lease not a freehold. So whilst the company may own the freehold or headlease (and the subleases to the flat owners) and if that's all it does, as Jennifer says, it can be regarded as dormant. The rent derived from the subleases must belong to another entity somehow though, maybe through a trust or subsidiary of the freehold owning company. Anyone got the legalities nailed?

 A freeholder who does not create leases (long or short) on a property will not derive an income from the property. Under those circumstances, a company owning a freehold may well be dormant. A freeholder that has created leases is active and is deriving income from the leases via ground rent. The service charges are (at least in theory) to defray the management, insurance and repair costs incurred by the freeholder.

A parent company was declared dormant by the accountant. However, during the time this company was dormant, shares were sold to several people for thousands of pounds. The money received for the shares was paid into the bank account of another company within the group and the parent company continued as dormant. When this matter was raised with the accountant, he said that the parent company was still dormant. Is this correct?

If a close company is to become dormant should it sell all of its fixed assets back to the directors.

Thanks