Dormant for Corporation Tax Purposes?

Would BBL Repayments Constitute Significant Accounting Transactions?

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The root of this question is whether or not a company (NewCo) will be obliged to share its forthcoming 2023 £50K CT lower threshold with its associated companies, (OldCos A & B). If OldCos are dormant for CT purposes, then NewCo benefits from the full £50K lower threshold; if A & B are active, then not.  

Client has two (100% owned) limited companies, OldCo A & OldCo B, each of which took out a whacking BBL. Those BBLs have been fully frittered away via o/drawn DLAs and meeting OldCo A & B's pre-existing revenue expenditure obligations.

Client formed a (100% owned) Phoenix, NewCo, which took over both of the OldCo companies' pre-lockdown trade and income streams. 

Client informs me that the only remaining transactions in either OldCo A or B are servicing the BBL and bank charges. I say that both OldCo A & B, in servicing their respective BBLs, would be clocking up significant accounting transactions and would therefore be considered active for CT purposes. Client has beeen conversing with crowd-pleasing types on other forums, and disagrees with me. Admittedly it's a subjective call.

What do others here believe? In servicing their BBLs, are OldCos A & B "active" for CT purposes; or not?       

Replies (38)

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By Roland195
10th Feb 2022 16:17

For what it is worth, as A & B have no trade or way of generating income then simply paying interest does not make them active for tax purposes.

This minor technicality would seem to be at the bottom of the to do list for this client though.

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Replying to Roland195:
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By I'msorryIhaven'taclue
10th Feb 2022 17:15

Thanks Roland,

So they'll not just be racking up interest; each company will be making a monthly repayment of BBLs over their (extended) 10 years' duration.

Let's dispense with the to do list: Cards on the Table I am totally opposed to this client's conduct and actions; the director's cunning plan (albeit thinly veiled) to escape BBLs by Phoenixing into another company is not my doing. And at the risk of appearing unprofessional, I do declare that I'm thrilled sick that said director might come unstuck. Not because of any vanity-driven I told you so aspect, you understand. Moreso an equitable result.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
10th Feb 2022 17:45

I have currently one the same
Nothing in writing but verbal that looking to shut down company and evade tax and BBL
In writing: please start a new company
A company due £6K CIS deduction refund for 2021 and £12K CIS deduction 2022 to date
BBL £12k
now former client
A bit annoyed as he sacked me before I could resign

And yes you guessed it
No intention to pay my fee

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
10th Feb 2022 19:18

Well to your credit you saw it coming and decided to draw your gun first; even though he was quicker on the draw.

I'm uncomfortable with such ducking and diving clients. By and large they're left-overs from ten to fifteen years ago. I don't know about you, Paul, but I feel no particular compulsion to be right about every single thing every single time. But with this particular client I've reached a crux; and accordingly would like to line up my ducks in a row prior to any battle. Maybe I've picked the wrong stance.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
10th Feb 2022 19:56

SARs are a waste of time
The covid stuff really has revealed greed and a certain level of deliberate dishonesty
Sympathy for those in need, but unbelievable dishonesty from millionaires rooking the system and unlikely to be effectively challenged

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Replying to Paul Crowley:
A Putey FACA
By Arthur Putey
11th Feb 2022 10:20

Sue the oldco for your fee and object to any strike off application

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Replying to Arthur Putey:
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By Paul Crowley
11th Feb 2022 14:36

Do not need to object
Bounceback loan controls will sort that
But yes I will be watching

The joint shareholder has now made contact
No the company is to be kept so she says, now that they know a CIS refund can be made
But my accounts fee is a lot given that I was appointed only 3 months ago
Can I reduce it to the monthly fee they paid the prior accountant x 3 ?

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
11th Feb 2022 14:54

Arthur Putey wrote:

Sue the oldco for your fee and object to any strike off application

Both OldCos A & B are all paid up to date, as for that matter is NewCo. Which I suppose gives me a window in which to sack client before this year's merry-go-round begins. There is also a genuinely dormant company (in every CT & Co House sense), DormantCo, which owes us a small amount for dormant accounts; inconsequential pocket-money though.

LATE EDIT: Oops, pardon me; you were talking to Paul C.
Paul, bounce-back-loan controls... will any body (or, for that matter, anybody) outside of the banks take such an interest?

(I was hoping this empire-builder might move of his own volition to one of the people he's evidently been consulting elsewhere; increasing fees hasn't got rid of him, and neither it seems will threatening to split NewCo's forthcoming £50K lower CT threshold. Tarnation!)

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
11th Feb 2022 15:07

Lots of companies trying to disappear, but no idea how long the objections will stick
This one will be watched
Lost interest in the other crooked company that got their new accountants to try the striking off as I insisted on payment before hand over, but just looked and still in hiatus
Strike off attempted feb 2021 by accountants that had seen my draft accounts showing a seriously overdrawn directors loan
Big firm of chartered accountants
Shame on them

To be honest, only having 2 dubious companies is quite pleasing, given that the current crooks had no record with me

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
11th Feb 2022 15:55

Paul Crowley wrote:

Strike off attempted feb 2021 by accountants that had seen my draft accounts showing a seriously overdrawn directors loan
Big firm of chartered accountants
Shame on them

To be honest, only having 2 dubious companies is quite pleasing, given that the current crooks had no record with me

I guess they were trying to do the best for their client. Just as any barrister might, perhaps. Somebody has to pick up the mantle - even for the most undeserving of clients. Just trying to get a perspective (in reality, still trying desperately to figure out what life's all about).

Two dodgy clients are exactly what I have. And for anyone that says just get rid of them then, these guys can be très sticky and more difficult to escort to the door than your mother-in-law. My other bad egg has managed to sweet-talk Cos House into suspending strike action even though accounts submissions are three years in arrears.Needless to say, he's something of a fast talker. And very credible; in spite of being something of a crook.

Isn't it rather odd how we pass on such dud clients to one another? Not unlike car dealers offloading a shed of a motor; or akin to passing on our slightly dud spouses.

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Replying to I'msorryIhaven'taclue:
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By Hugo Fair
11th Feb 2022 16:13

I was tempted to write a spoof advertising card (in the style of a dodgy car dealer) for your "slightly dud spouse" ... but all my attempts fall foul of modern sensitivities (where words like used, coachwork, undercarriage, banger, high maintenance and many others kept being deleted).
I'd advise not sharing your post with your, I'm sure, not-at-all dud spouse ... in my experience a shared sense of humour can divide rather quickly at times!

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Replying to I'msorryIhaven'taclue:
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By Roland195
10th Feb 2022 20:24

I can't say I have any better notions about who to proceed with such clients. They obviously can't know when we fire in SARs so it diminishes the dramatic effect of our resignations to more of a flouncing off.

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Replying to Roland195:
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By I'msorryIhaven'taclue
11th Feb 2022 18:50

Unfashionable or not, I might just consider flouncing. Sounds like fun!

I've just spent the last hour or so compiling a SAR. Thank you all; and the original question is still there for the purists. My own interpretation is that so far as "active" is concerned, then repaying BBLs would (arguably) be tantamount to significant accounting transactions.

I appreciate what the panel have indicated, and indeed I'm as always grateful for their learned opinions. And, Paul C, I take on board that this matter is all about HMRC's not trading concept, as opposed to Cos. House version of dormancy.

Nevertheless I find myself drawn to the split-CT threshold argument. Am I perhaps guilty of hearing what I want to hear, and so believing what I wish to believe? Answers on a postcard.

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By Paul Crowley
10th Feb 2022 17:05

This is the problem of rubbish writers on .Gov

Dormant is companies house
Trading is HMRC, or it was in the past but .Gov now uses dormant for HMRC not "not trading"

I would go with not trading

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RLI
By lionofludesch
10th Feb 2022 17:09

I vote not trading.

You need a trade to be trading and I don't think this company has one, based on what you say.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
10th Feb 2022 18:26

Paul Crowley wrote:

I would go with not trading

lionofludesch wrote:

I vote not trading.

Ouch! I've advised otherwise. I'm grateful, nonetheless; but shall extend my argument and impose upon your collective good natures so as to consider the matters discoursed at:

https://www.gov.uk/guidance/corporation-tax-trading-and-non-trading

At the risk of harping on, might there be sufficient significant accounting transactions to warrant (Corp Tax / HMRC) "activity"? The other side of that question, I guess, is whether servicing BBL loan payments constitutes such "activity".

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
10th Feb 2022 18:35

I'msorryIhaven'taclue wrote:

Paul Crowley wrote:

I would go with not trading

lionofludesch wrote:

I vote not trading.

Ouch! I've advised otherwise. I'm grateful, nonetheless; but shall extend my argument and impose upon your collective good natures so as to consider the matters discoursed at:

https://www.gov.uk/guidance/corporation-tax-trading-and-non-trading

At the risk of harping on, might there be sufficient significant accounting transactions to warrant (Corp Tax / HMRC) "activity"? The other side of that question, I guess, is whether servicing BBL loan payments constitutes such "activity".

The thing is - I wouldn't be happy claiming the losses as trading losses. I may have misunderstood but, if you're not happy either, I can't see how you can say the company is trading.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
10th Feb 2022 19:03

Hi Lion,

Not so much to do with trading losses - as it transpires, that has no bearing on this particular case- but more to do with the idea of associated trading companies,[***] 2023 and the CT rate uplift.

I'm struggling with HMRC's (although not Co. House's) notion of significant transactions. If either or both OldCos are "active", then all companies would of course split their CT thresholds (including the £50k lower rate threshold). Or, conversely, if not then of course not.

It's rather subjective. And, given the extent of the BBL loans in our (miscreant) client's circumstance, something of a value call.

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A Putey FACA
By Arthur Putey
10th Feb 2022 17:23

And of course the trade was transferred to the newcos at arms length valuation and moneies paid to the oldcos for assets and goodwill. And they all lived happily ever after.

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
10th Feb 2022 17:39

Well I for one am totally opposed to it.

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
11th Feb 2022 10:35

Upon investigation, nothing paid for intangibles. Assets transferred at M.V. & stock transferred at cost. Both Cos VAT deregistered.

I know this client frequents other forums seeking advice, so he's become adept in the finer points of such matters. I would expect him to argue the case for the goodwill of both OldCos being of a personal nature ie that he himself is the primary asset. And I can see how he's heard what he wants to hear and believed what he wants to believe, and planned accordingly. For example, there are a series of intercompany loans between all 3 companies which cloud DLA matters in OldCos; and as a separate example NewCo took out its own BBL loan based on its anticipated turnover. See what I mean? In isolation, each individual action might arguably be legal (though only just). Taken together, they begin to look suspicious.

Ahh, the best laid plans of mice and men... I'd very much like to come in from left field to put a spoke in his wheel with a "not dormant" ruling (thereby torpedoing NewCo's £50k CT lower rate threshold next year).

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By Calculatorboy
10th Feb 2022 23:38

To me the whole thing sends off alarm bells after reading just one line, if it sounds convoluted it usually is.....personally i'd walk away

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Replying to Calculatorboy:
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By I'msorryIhaven'taclue
11th Feb 2022 10:00

Thanks CB, I am indeed planning to walk away. I'm lining up my soldiers in readiness.

It's HMRC's significant accounting transactions definition that has me perplexed (HMRC's "dormancy" test; although as Paul C has pointed out above HMRC really mean "not trading" when they say "dormant").

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By Tax Dragon
11th Feb 2022 07:13

Is there not s455 tax to account for and then to reclaim as the loans are repaid? So they're not tax inactive. (Not that that's necessarily relevant to the question you mean to ask.)

[And, as Arthur has pointed out, there were other significant transactions (disposals of assets/balancing charges/distributions/etc) for tax purposes. But good luck getting those treated correctly... again, as Arthur said.]

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
11th Feb 2022 10:12

All tangible assets, including stock, have been transferred by client; debtors & creditors ledgers cleared. The company's B.S. will (by now) contain a bank account and a BBL loan.

And no doubt an 0/d DLA - so good point about the s455 tax.

The BBLs are £20kish in each company, and the core question for me is whether significant accounting transactions should be interpreted as significant in number or significant in £ amount? Or both.

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Replying to I'msorryIhaven'taclue:
A Putey FACA
By Arthur Putey
11th Feb 2022 10:43

What accounting entries were made for the "tansfers"? Is VAT involved? Now you'll have us going off on a TOGC tangent!

[Edit: and I'd missed the post above that tells us the oldcos had deregistered]

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
11th Feb 2022 10:43

The accounting entries are quite sound (I think the director was a bookkeeper prior to moving into I.T.)

All 3 companies were VAT registered; both OldCos have recently deregistered.

My 10.35 post, higher above, replying to your earlier post outlines the intangibles position. Client had previously split one OldCo into two OldCos some years ago, so sort of knows the ropes. He canvasses other forums to fill in his knowledge-gaps, so tends to have an answer for everything.

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Replying to Tax Dragon:
A Putey FACA
By Arthur Putey
11th Feb 2022 10:14

I was thinking the same (but as you say it wasn't germane to the question). Perhaps the BBLs cleared the DLAs, eliminating the s455 tax. If they, that would mean a dividend, but would this be a legal dividend if trading had ceased and there were no distributable reserves. I wonder what the balance sheets look like ........

[Edit: ISIHAC's reply crossed with this]

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
11th Feb 2022 10:52

No distributable reserves; the present day B.S. snapshots for OldCos A & B would each contain a couple of thousand at the bank and a £20k or so BBL. The balancing entry would, you might imagine, be an o/d DLA; although the client has managed to obfusticate that with inter-company loans (which, upon cursory inspection, appear to have left each of the three companies with a net debtor! But I'm trying not to be side-tracked by that just yet).

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Replying to I'msorryIhaven'taclue:
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By Hugo Fair
11th Feb 2022 14:14

Based on the insights you've provided so far into client's background and approach to life, I'd only (unhelpfully) comment that ...

If you think that a rogue gamekeeper is more trouble than a poacher, then someone who was never actually a gamekeeper but fancies being a 'rogue gamekeeper' will be your worst nightmare!

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Replying to Hugo Fair:
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By I'msorryIhaven'taclue
11th Feb 2022 15:13

A sheep in wolf's clothing!

The irony is that I collected him as a client, way back when, from a forum. I guess I must have advised whatever it was he wanted to hear.

I'm cooking up a you're fired letter, and would find it ever so amusing to send him a more-or-less exact copy of the you're fired letter he received from his previous accountant way back then. Or is that a little too much like Adolf's surrender documents in the Compiègne Wagon?

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Replying to I'msorryIhaven'taclue:
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By Matrix
11th Feb 2022 19:06

What does your last sentence mean?

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Replying to Matrix:
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By Hugo Fair
12th Feb 2022 00:04
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Replying to Hugo Fair:
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By I'msorryIhaven'taclue
21st Feb 2022 13:53

Thank you Hugo.

It meant Der Führer had a sense of dramatic irony, Matrix. What Aesop might have called dishing out to someone a taste of their own medicine.

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By Rgab1947
21st Feb 2022 10:02

I would say the whole saga is fraudulent but hey what do I know.

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paddle steamer
By DJKL
21st Feb 2022 14:29
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Replying to DJKL:
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By I'msorryIhaven'taclue
21st Feb 2022 14:57

Thanks DJKL,

I'll revisit and read more carefully. Seems to boil down to whether transactions (of paying off BBLs) are sufficiently significant to constitute "activity".

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Replying to I'msorryIhaven'taclue:
paddle steamer
By DJKL
21st Feb 2022 16:38

My reading of the attached and the cases mentioned is that without some form of business activity that generates income it might well be considered inactive re associated company status re small companies relief, but I am not sure if the cases mentioned under the previous small companies regime are fully on point re the new one as not sure how much the new regime inherits the definitions of the old.

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