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Dormant to Trading, Small Company exemption or not

If a dormant company has been so since creation what accounts must be filed when it starts trading ?

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A company is created

Zero transactions go through. That includes share capital. The balance sheet shows share capital called but unpaid

A number of years pass. Then in one year a large transaction (>£20m) goes through. The company will not qualify for small status on turnover and assets

If this was year 1 then full accounts would be filed. But the company argues that the prior years count as 'Small'. It is expected to be small in year 3 also

Question is, whether the start of trading, some years after incorporation should be taken as Year 1 with full accounts prepared, or whether the company can argue that it is following the prior and subsequent rule (ie small, large, small) and can file with small company exemptions, which requires the dormant period to count as a small year (where no transactions have ever gone through the company)

 

 

 

Replies (17)

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By Paul Crowley
19th Jun 2021 19:09

Is this really an audit avoidance question?

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Replying to Paul Crowley:
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By Hugo Fair
19th Jun 2021 19:34

Certainly sounds keen to hide something(s) from somebody ... not surprising if a year with £20+m appears 'out of the blue'.

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Replying to Paul Crowley:
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By Howard Bryant
20th Jun 2021 10:48

It may be. It may also be relevant to tax avoidance. But the key question is whether a dormant / never transacted company, can treat a 'big' year as being sandwiched between two small years, rather than having to treat the big year as a first year above the thresholds.

The task is made more difficult as the filed accounts as 'small' show a below threshold BS. So on the face of it that would be ok. But to get 'small' within a month of a material contract the director would :

a) have to be very on the ball as to the rules. Unlikely for a 'wheeler dealer' I think
b) would either have had to dividend out most of the cash in excess of profits to deal with cash required for VAT and CT, or would have had to have booked and paid a large (maybe interco) invoice to extract the profits. There is no point in having current liabilities as the asset test is on gross assets. For a similar reason there is no advantage in loaning any cash out

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RLI
By lionofludesch
20th Jun 2021 07:46

>£20m?

I'll wager there's a story behind this that may just prove relevant.

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Replying to lionofludesch:
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By Tax Dragon
20th Jun 2021 08:38

It's almost as if someone's read a rule and then thought of a scenario to 'test' the rule.

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Replying to Tax Dragon:
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By Howard Bryant
20th Jun 2021 10:50

I doubt it has been that well thought out. But if advice has been received that says dormant >> big >> small can be the same as small >> big >> small then it could be a very handy way to hide dodgy transactions and tax avoidance

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Replying to lionofludesch:
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By Howard Bryant
20th Jun 2021 10:52

shall we say govt contract ...

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Replying to Howard Bryant:
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By zebaa
20th Jun 2021 11:17

Okay, you have our attention...for now... Either tell the full tale or don't bother. By Tuesday this will have sunk below the screen view, so you don't have long.

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Replying to zebaa:
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By Howard Bryant
20th Jun 2021 12:55

I cannot give more details at present. If I can get clarity on the question then perhaps I can give more. But it does concern a material government one-off contract.

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Replying to Howard Bryant:
paddle steamer
By DJKL
20th Jun 2021 12:43

Covid, perchance, maybe they bought in lots of kit for the NHS and sold it with a "small" margin.

If it is I would drop them, I could stomach wide boys, cash traders etc as clients, but I could never have countenanced acting for the mates and pals of our political classes, you really have to draw the line somewhere.

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Replying to DJKL:
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By Howard Bryant
20th Jun 2021 12:55

They are not clients.

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Replying to Howard Bryant:
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By Paul Crowley
20th Jun 2021 13:39

How do you know these details?
Why are you asking?
Are you considering an SAR?
Someone told you something and you appear to think there is a tax issue already.
Do you suspect the company will be struck off having not done the right thing?

Which politician arranged a mates deal?

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Replying to Paul Crowley:
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By bernard michael
21st Jun 2021 10:19

Paul Crowley wrote:

How do you know these details?
Why are you asking?
Are you considering an SAR?
Someone told you something and you appear to think there is a tax issue already.
Do you suspect the company will be struck off having not done the right thing?

Which politician arranged a mates deal?


Also what pub do you drink in
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Replying to Howard Bryant:
RLI
By lionofludesch
20th Jun 2021 15:53

Howard Bryant wrote:

They are not clients.

It's Matt Hancock's sister, isn't it?

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By bernard michael
21st Jun 2021 10:20

Can I assume the company is VAT registered ??

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By paulwakefield1
21st Jun 2021 10:39

The qualifying period conditions to be a small company are defined in relation to financial years and not by trading so, subject to other information e.g. ineligibility, I would say the interpretation of being a small company is correct. However much it may stick in the craw.

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Replying to paulwakefield1:
Flag of the Soviet Union
By thevaliant
21st Jun 2021 11:19

I would agree.

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