Dormant company accounts - best way forward

I've got a client who owns a limited company but he had to take a full time job

Didn't find your answer?

I've got a client who owns a limited company but he had to take a full time job but he wants to keep the company dormant.

I've told him to close the company bank account and keep a list of any receipts (maybe only VAT refund & CT refund - I think HMRC will pay any refund to the director's current account) and payments (my bill). These can be entered in the company accounts when/if the company starts trading again.

I'd want to accrue my bill in the accounts before dormancy. Is it OK to carry forward accruals for several years?

Another question about dormant accounts: I use the dormant accounts option at Companies House even if companies have previously traded. Is it OK if no risk can be identified.

Replies (28)

Please login or register to join the discussion.

avatar
By David Ex
26th Aug 2021 10:42

The question as to what is a dormant company Vs non-trading company for statutory reporting and tax purposes is discussed here regularly.

From memory you ain’t got a dormant company for the former purpose.

If that is the case then accounting for transactions “late” is not an option.

Thanks (0)
Replying to David Ex:
By petersaxton
26th Aug 2021 10:49

So how would most companies ever become dormant if there's accounting bills and tax to pay after the year end?

Thanks (0)
Avatar
By I'msorryIhaven'taclue
26th Aug 2021 10:55

For dormant periods, Companies House will want there to be "no significant accounting transactions during the accounting period."

Are you proposing to accrue this years' accountancy fees? In which event, surely your client eventually paying your fees would amount to a significant transaction in next year's accounting period.

Or, if I've got hold of the wrong end of the stick above, and you are proposing the client pays you now and in advance for future years' dormant accounts prep fees, then wouldn't reversing entries count as significant transactions?

I've never been quite certain whether paying accounts prep fees for a dormant company is a catch-22 situation (because such fees could mean the company is not dormant. So far as I recall, the workaround might be to charge a single (inflated) fee for filing the annual return (sorry, confirmation statement).

Thanks (0)
Replying to I'msorryIhaven'taclue:
By petersaxton
26th Aug 2021 11:19

I wouldn't know how many years I would have to charge for doing the work if I was going to charge in advance. There's still the problem of prepayments rather than accruals.

Thanks (0)
Replying to petersaxton:
avatar
By David Ex
26th Aug 2021 12:02

petersaxton wrote:

I wouldn't know how many years I would have to charge for doing the work if I was going to charge in advance. There's still the problem of prepayments rather than accruals.

Nothing to stop the owner paying your fees. There’s no tax relief in the company anyway so no loss to him/her.

Thanks (3)
avatar
By sarahg
26th Aug 2021 10:56

I would prepare non trading accounts as the company is not dormant

Thanks (1)
Replying to sarahg:
avatar
By Paul Crowley
26th Aug 2021 11:01

Same here
Does not take much longer

For never traded we use the companies house thing, even if we charge the director a fee for doing so

Thanks (0)
Replying to sarahg:
Avatar
By I'msorryIhaven'taclue
26th Aug 2021 12:21

For non-trading accounts, I guess the company can keep its bank account and for itself the accountant's account prep fee (rather than the director paying from his own pocket, as with dormant accounts)?

Thanks (0)
Replying to I'msorryIhaven'taclue:
By petersaxton
26th Aug 2021 12:47

I'msorryIhaven'taclue wrote:

For non-trading accounts, I guess the company can keep its bank account and for itself the accountant's account prep fee (rather than the director paying from his own pocket, as with dormant accounts)?


But if it's paying the accountant out of the company bank account it's not dormant.
Thanks (1)
Replying to petersaxton:
Avatar
By I'msorryIhaven'taclue
27th Aug 2021 18:14

Agreed, Peter, but I said non-trading not dormant

Thanks (0)
Replying to I'msorryIhaven'taclue:
By petersaxton
27th Aug 2021 18:26

Understood. I wasn't disagreeing but I was pointing out it's not dormant. It would seem to be best to prepare accounts and confirmation statement and charge as if it was dormant.

Thanks (0)
By Duggimon
26th Aug 2021 11:02

The dormant option on Co House is inappropriate, the company is not dormant by their definition, however if the opening balances match the closing balances, it doesn't take much to file proper accounts.

You can be dormant for tax purposes though and remove the need for a CT600, just write to HMRC and have them confirm no need for a return. Then you don't need full accounts either, just abridged/filleted. I don't think it's any more onerous than the dormant co form to prepare and file.

Thanks (0)
Replying to Duggimon:
By petersaxton
27th Aug 2021 18:29

Duggimon wrote:

The dormant option on Co House is inappropriate, the company is not dormant by their definition


Why not?
"Dormant according to Companies House
Your company is called dormant by Companies House if it’s had no ‘significant’ transactions in the financial year.
Significant transactions don’t include:
filing fees paid to Companies House
penalties for late filing of accounts
money paid for shares when the company was incorporated"
https://www.gov.uk/dormant-company/dormant-for-companies-house
Thanks (0)
Replying to petersaxton:
RW
By RichardWelbourne
01st Sep 2021 10:01

When you use the dormant company filing on Companies House it gives you this message -
This accounts format is only suitable for companies that:

have never traded
are not a subsidiary
the only transaction entered in the accounting records of the company is the issue of subscriber shares

Surely your company will fall foul of the first point?

Thanks (0)
Replying to RichardWelbourne:
By petersaxton
01st Sep 2021 10:59

The question is why? Only because it says so and no practical reason?

Thanks (0)
paddle steamer
By DJKL
26th Aug 2021 14:25

My practical solution for our non trading companies is not to bother with treating them as dormant.

Software (in our case TaxCalc) brings forward LY TB, we then post confirmation fee to DLA/intercompany as appropriate as a JE, finish with dates/who signed etc and lodge online. From start to finish maybe 10 minutes work for me max, though I do sometimes have to wait a while for the directors to pop into the office to sign the accounts. HMRC accept they are not trading and do not seek CT600.

Thanks (2)
Replying to DJKL:
avatar
By Winnie Wiggleroom
27th Aug 2021 07:16

DJKL wrote:

My practical solution for our non trading companies is not to bother with treating them as dormant.

From start to finish maybe 10 minutes work for me max, though I do sometimes have to wait a while for the directors to pop into the office to sign the accounts. HMRC accept they are not trading and do not seek CT600.

Ditto, and I would lower your 10 minutes to 5! just a few clicks, quick download, send it off for e-signing and its done, in fact its probably quicker than using Co House

Thanks (0)
avatar
By kestrepo
27th Aug 2021 12:08

I'd keep the bank account open with a lonely £1 sitting in it. Saves opening up a new account in 3 months time when your client changes their mind - but that's probably just me!

Thanks (1)
By cfield
01st Sep 2021 10:25

The important thing here is to stop doing CT600 returns, as then you won't need to prepare and attach a full set of accounts on your software. All that requires is a letter to HMRC with the date trading ceased. Then you can knock up a quick set of accounts on an Excel spreadsheet, showing just your fee, the annual £13 filing fee and the closing transactions on the bank account, and use the Companies House Webfiling to file filleted accounts under FRS105. Or you can use your software if you think it's any quicker. Goes without saying of course to deregister from VAT and PAYE.

I wouldn't have bothered closing the bank account, unless there are monthly bank charges, as you never know if the client might need it again. Just check the closing balance each year and identify any movements. Basically, the definition of dormancy is a bit of a red herring here, as the main aim is to keep the company going with the minimum of work, and the WebFiling is the best way to do that, as you only need to enter about 6 numbers for the Balance Sheet. If those numbers don't change, it's dormant and you can use that option if you want. If they do, then it's hardly any extra work.

By law, the shareholder should have a full set of accounts in the prescribed format. Just PDF your spreadsheet and send that to him by email. Will help to justify your fee!

Thanks (0)
avatar
By Andy Reeves
01st Sep 2021 11:49

Tell him your annual fee for preparing non-trading accounts, and also quote him for (a) striking this one off; and (b) setting up a new company if he trades again. I suspect he will opt for striking off when he realises that one or two years of non-trading accounts will cost him more.

Unless there are unused tax losses, substantial amounts in the bank that he can't get out tax efficiently, or a particular business name that he wants to retain, I don't see why he would want to keep the old company open.

Thanks (0)
Replying to Andy Reeves:
By petersaxton
01st Sep 2021 12:18

I do have companies with unused tax losses and retained business name but I would prefer to have the last full accounts paid and tax finalised and then after that dont have anything through the books and the shareholder pays and claims if they start using the company again.

Thanks (0)
Replying to petersaxton:
paddle steamer
By DJKL
01st Sep 2021 14:53

Unused losses can be a tad tricky if trading losses, are you sure they will survive the inactivity?

Thanks (0)
Replying to DJKL:
By petersaxton
01st Sep 2021 15:03

The company I am thinking about doesnt have much choice. The shareholder emigrated to Australia years ago.

Thanks (0)
avatar
By David Gordon FCCA
01st Sep 2021 11:58

"Dormant" means dormant, no transactions, nothing.
It is the work of minutes to prepare and file the CoHse form with annual confirmation statement.

Non-trading generally means a company that previously traded and has now stopped, so has some stuff on the Balance sheet.

A non-trading company may have substantial assets.

In either case just filing a simple CT600 also takes less than 5 minutes, if you use competent software.

As far as fees are concerned I tend to roll them in with general fees for the client.
But, I am paid by fixed monthly retainer.

Thanks (0)
Replying to David Gordon FCCA:
By cfield
01st Sep 2021 12:16

You only need to file a CT600 if the company is still in the corporation tax regime, and it should only be in the corporation tax regime if it is still trading, or carrying on investment activities. Non-trading/investment companies should come out.

That might mean giving up substantial tax losses, so in that case, it may be worth keeping some trading activity going, even if it is very low. This is also relevant of course for BADR purposes (ex ER) as you only get 3 years to make a claim once it has ceased trading. Depends how much is left in the company of course, and how much money the shareholder earns. There may be more tax efficient options.

Thanks (0)
Replying to David Gordon FCCA:
By petersaxton
01st Sep 2021 12:25

" "Dormant" means dormant, no transactions, nothing."

"Dormant according to Companies House
Your company is called dormant by Companies House if it’s had no ‘significant’ transactions in the financial year.

Significant transactions don’t include:

filing fees paid to Companies House
penalties for late filing of accounts
money paid for shares when the company was incorporated"

https://www.gov.uk/dormant-company/dormant-for-companies-house

Thanks (0)
Morph
By kevinringer
01st Sep 2021 13:18

You can only file dormant accounts for a company that has never traded and not incurred any ‘significant’ transactions in the financial year. Significant transactions don’t include:

1. filing fees paid to Companies House
2. penalties for late filing of accounts
3. money paid for shares when the company was incorporated

The accountancy fee would be a 'significant transaction'. I get around this problem by charging the director/shareholders personally. They're happy to pay because it preserves the dormant status.

Thanks (0)
Replying to kevinringer:
By cfield
01st Sep 2021 13:32

I don't know why people get so hung up about this word "dormant". They seem to think it's hugely advantageous to make sure their company is dormant once it ceases trading, yet most of them completely misunderstand the term and think their company is dormant when it isn't. Not only that, but they fail to understand that it is just as easy to prepare and file near-dormant accounts on the WebFiling simply by clicking a different button.

They wouldn't be so happy to pay the accountancy fees themselves if they knew they had a CGT bill (or even an income tax bill) to pay on the retained profits and the expenses would reduce them.

Thanks (0)