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Dormant for Corporation Tax v Companies House

Is a company that is dormant for Corporation Tax necessarily dormant for Companies House?

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I have recently been looking at a flat management company that appears to meet the requirements to be dormant for corporation tax purposes but it also files dormant company accounts with Companies House showing a balance sheet with no net assets and no reserves.  The detailed accounts provided to members show that it has collected service charges and paid various expenses during the year and at the year end it has a balance sheet showing net assets and reserves of around £25k.  Is it right that the company can file dormat accounts showing a nil balance sheet?

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RLI
By lionofludesch
11th Nov 2019 16:53

There are two schools of thought.

1. The company is merely handling the tenants' money as agents or trustees and has no transactions of its own.

2. The company is contracting with various suppliers and those suppliers ought to be able to take comfort from being able to see what assets and liabilities the company has.

You'd have to look at how the company conducts its business but, in the limited experience I have with these companies, option 2 is far more common. Suppliers almost invariably invoice the company.

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By atleastisoundknowledgable...
11th Nov 2019 17:50

Quote OP: “Is it right that the company can file dormat accounts showing a nil balance sheet?”

Yes. As mentioned, some accountants file dormant accounts and treat all transactions as being on trust, some treat the transactions as company transactions. Personally, I’m in the latter category.

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By Roland195
11th Nov 2019 20:52

Are you sure you want to be looking at this? Most Accountants agree this area is an utter ball ache with the people involved being unwilling, unable or both to understand their responsibilities and provide paperwork and will be unlike to thank you (or agree to pay you) to deal with this in a manner expected of a regulated practitioner.

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By JDBENJAMIN
12th Nov 2019 11:38

Flat management companies are often the worst clients. Every lessee sticks their oar in, record keeping is usually not done properly if at all, lessees row with each other and with you, many try not paying their share and you end up involved in it without being able to charge a worthwhile fee......

Anyway, this sounds like such a case. I find the claim that all transactions are on trust and therefore not the company's just bizarre. It sounds like an excuse to just not do the work. I can think of serious legal consequences of filing dormant accounts. It should be done properly. It is obvious that the transactions are really the company's.

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Replying to JDBENJAMIN:
RLI
By lionofludesch
12th Nov 2019 11:56

JDBENJAMIN wrote:

It sounds like an excuse to just not do the work.

The work has to be done anyway to produce the service charge accounts.

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Replying to JDBENJAMIN:
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By Roland195
12th Nov 2019 12:17

JDBENJAMIN wrote:

I can think of serious legal consequences of filing dormant accounts. It should be done properly. It is obvious that the transactions are really the company's.

The ICAEW put out guidance on this subject regularly. If I were an ICAEW member, I'd take this a sign not to touch the things and you can bet that's where the QAD Gestapo will head first.

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By David Gordon FCCA
13th Nov 2019 12:55

Management companies are not the worst clients.
Try small religious communities run by a committee
or
Travel agents

If the company has a bank account, and there is at least one transaction through it, the company is not "Dormant" means as per the dictionary.
A Flat management company, with "Live" member tenants, cannot be dormant, it is engaging in management on a daily or monthly basis.

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RLI
By lionofludesch
13th Nov 2019 14:23

Worth pointing out that Companies House recently announced a purge on poorly maintained companies.

Not likely to be as effective as Joe Stalin's purges, I suppose, but something to bear in mind.

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By heraldstar
15th Nov 2019 13:21

I an not an accountant, but the most active director of 3 RMCs (flat management companies), being the only lessee willing to shoulder the responsibilities involved.

Stephanie Ward's question was:
"The detailed accounts provided to members show that it has collected service charges and paid various expenses during the year and at the year end it has a balance sheet showing net assets and reserves of around £25k. Is it right that the company can file dormat accounts showing a nil balance sheet?"
Yes indeed, that is what the law specifies! Keep reading to see why ...

lionofludesch wrote: "Suppliers almost invariably invoice the company."
That, IMHO, would be regardless of whether the company is acting as principal or agent!

Roland195 wrote:
"... the people involved being unwilling, unable or both to understand their responsibilities and provide paperwork and will be unlike to thank you (or agree to pay you) to deal with this in a manner expected of a regulated practitioner."
If any directors are failing "to understand their responsibilities and provide paperwork" then they are failing in their statutory duty as directors.
I thought it was fraud to engage somebody to do something at an agreed price, and then renege on payment without good reason (e.g. bad workmanship, etc.)
But a ballpark version of the price should always be agreed in advance, so you should have had them agree (before the work is done) to pay you (once the work is completed).

JDBENJAMIN wrote:
"Every lessee sticks their oar in, record keeping is usually not done properly if at all, lessees row with each other and with you, many try not paying their share and you end up involved in it without being able to charge a worthwhile fee"
If necessary, you should insist on a "single point of contact": deal only with ONE director, who clearly needs to have tthe authority and/or approval of the others to speak for the company and for them - and this director should be required to get a necessary consensus ona nything BEFORE you need to process it. Or, if discussion is subsequently needed, that this same director organises this and gives you the res;ponse(s).
If any lessees don't pay their share, that is a matter for the company, which could end up with a cash flow problem. HOWEVER, if it is also the freeholder AND (as is usual) the service charges are treated by the lease as "additional rent", then the company can force payment, if necessary under threat of "forfeiture" of the lease, see e.g.
https://www.stepchange.org/debt-info/service-and-ground-charge-arrears.aspx

JDBENJAMIN wrote:
"I find the claim that all transactions are on trust and therefore not the company's just bizarre. ... I can think of serious legal consequences of filing dormant accounts. It should be done properly. It is obvious that the transactions are really the company's."
Well, "Ignorance of the law excuseth no man" - nor woman!
Take a look at Section 42 and 42A (also 42B) of the Landlord and Tenant Act 1987 (as currently in force)
at http://www.legislation.gov.uk/ukpga/1987/31/section/42
and http://www.legislation.gov.uk/ukpga/1987/31/section/42A
or e.g. https://www.servicechargedisputeguide.info/section-42-service-charge-con...
The law clearly states that the money is NOT the company's, but is held by the company in trust for the lessees.
Therefore, if the company started after this law came into force, the correct way would be for the company to be dormant, and file dormnant accounts.
BUT it can happen that not all the flats have their lessees as members/shareholders of the company from the start; and adding a new share destroys the "dormant" status for ever - and thereafter it should file appropriate nil accounts. (A company "limited by guarantee" would not have this problem.)
However, I have been advised by our accountant that if the company was already filing accounts as though it were the company's money and transactions when this law came into force, then it should continue to do so and not change the basis of its filed accounts.
Where this is the case, it is usual to attach to the filed accounts a breakdown of expenditure etc. under various headings, for the lessees (i.e. the "service charge accounts", the pages of which should clearly state that they "do not form part of the statutory accounts".

David Gordon FCCA wrote:
"If the company has a bank account, and there is at least one transaction through it, the company is not "Dormant" means as per the dictionary.
A Flat management company, with "Live" member tenants, cannot be dormant, it is engaging in management on a daily or monthly basis."
Well, according to s.42 of LATA'87, this isn't ITS OWN money, and very likely it doesn't have any money of its own!
At one block, I file nil (was dormant until issue of an additional share) accounts, and we have an accountant prepare the service charge accounts for the lessees.

lionofludesch wrote: "Worth pointing out that Companies House recently announced a purge on poorly maintained companies."
I can't help feeling that those which comply with the law (as it currently stands) OUGHT to be OK.
At another block I'm involved with, accounts are still filed as if the money belongs to the company, so maybe I should start getting worried ... ;(

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Replying to heraldstar:
RLI
By lionofludesch
15th Nov 2019 13:35

Well, whatever you think best.

It's your company.

I don't intend to wade through all that with a critique.

Maybe you should be worried that pretty much everyone on here disagrees with you. Maybe you're right and everyone else is out of step.

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Replying to heraldstar:
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By Roland195
15th Nov 2019 15:40

Not entirely sure what you point is other than to prove mine that this area is an utter ball ache for any accountant foolish enough to get dragged into it.

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