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HMRC "Catch 22" Late Filing Fine for Initial CT600

First year accounts 12 and a half months duration, y/e 31 December 2020. Two Ct600s required.

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New (to us) client company, arrived too late for us to rearrange AP date. Incorporated 15th Dec 2019, commenced trading (circa) mid- April 2020. Firtst accounts to 31 Dec 2020.

So no problemo with Cos House accepting a 12 and a half months duration single set of accounts. Submission date nigh.

But two Ct600s: for (dormant) p/e 31 Dec 2019 & y/e 31 Dec 2020 would surely trigger a late filing penalty for the earlier return. Likewise if the Ct600s are timed at p/e (circa) 15th April 2020 & p/e 31 Dec 2020.

I have a feeling of deja-vu over this question (I want to say from around 15 years ago) and might well receive a slap from the panel. Nevertheless, does anyone please have any advice or guidance for a workaround that (a) avoids any appeal against the late-filing penalty; and (b) avoids any HMRC penalty for late filing of a "dormant" initial period return?

The best intel I have is that HMRC were never advised that the company commenced trading activities in April 2020 (so quite probably expect the company to be dormant currently). Should the client risk it by skipping the initial period's CT600 return?    

 

Replies (34)

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By Matrix
25th Nov 2021 00:04

Just prepare and submit a return for the period from commencement of trade.

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Replying to Matrix:
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By I'msorryIhaven'taclue
25th Nov 2021 10:33

That'd cover the period 15th April 2020 till 31st Dec 2020.

That still leaves me with the dormant initial period, from incorporation mid Dec 2019 till 14th April 2020. It's the CT600 for that initial non-trading period that's my issue - I imagine it'll attract penalties for either non-submission or late submission.

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By Wanderer
25th Nov 2021 03:34

Why would you submit a CT600 for the dormant period?

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Replying to Wanderer:
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By Tax Dragon
25th Nov 2021 06:04

I am not the OP, but let's venture on his behalf: because you'd had a notice to file and you had read https://www.gov.uk/dormant-company/dormant-for-corporation-tax

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Replying to Tax Dragon:
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By Wanderer
25th Nov 2021 10:05

Yeh, but they need to read the CT603s which says:-

CT603 wrote:
If the period shown above is not an accounting period, a return is required
• for each accounting period that ended during or at the end of the period shown above, or
• if no accounting period ended during or at the end of that period, for that part of the period that does not form part of an accounting period, or
• if the company was outside the charge to corporation tax throughout the period shown above, for the whole of that period.

In practice I find if you send a CT600 for the correct (generally trading) AP then eventually the records get updated with the new AP and the two incorrect AP CT603 requirements get cancelled.

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Replying to Wanderer:
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By Wanderer
25th Nov 2021 10:59

Making the effort now to re-read the quote and more importantly the law it looks like strictly a return is required for the dormant period (if a notice is issued).

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Replying to Wanderer:
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By I'msorryIhaven'taclue
25th Nov 2021 11:08

Thanks Wanderer,

I guess what you were contemplating is the scenario where the company commences trading on the day it was incorporated:

https://www.gov.uk/first-company-accounts-and-return/trading-from-set-up

In which event I would have been able to file CT600s for the initial 12 months ended mid-December 2020; and then for mid-Dec 2020 to end of Dec 2020. (With both CT600s filed in time).

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Replying to I'msorryIhaven'taclue:
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By Wanderer
25th Nov 2021 11:20

Nope, wasn't contemplating that!
Here's the law:-
https://www.legislation.gov.uk/ukpga/1998/36/schedule/18

Have a look at 14(1)(b). Filing date is 31/12/2021 for both returns.

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Replying to Wanderer:
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By Paul Crowley
25th Nov 2021 11:53

It may be same filing date
But if the computer thinks the first one is late, computer will charge penalty.
No worries per HMRC, you can always appeal and we will eventually fix it

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Replying to Paul Crowley:
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By Wanderer
25th Nov 2021 12:00

Yeh, used to be common with the 12 months + short period situation (of actual trading).
Now, however, as I've stated above, the two original (imposed) APs get replaced by actual APs.

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Replying to Wanderer:
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By Paul Crowley
25th Nov 2021 12:39

Stretched dates get the same problem
2 returns with computer saying the first is late

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Replying to Wanderer:
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By I'msorryIhaven'taclue
25th Nov 2021 12:05

Thank you so much, Wanderer.

So my relevant period of account for 14(1)(b) meets the definition in 14(2)

Clever of you (and remiss of the Revenue not to highlight such extended filing dates in their alleged guidance's example).

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
25th Nov 2021 11:03

Almost, TD. (btw have you been absent on the naughty stool?)
https://www.gov.uk/first-company-accounts-and-return/trading-after-set-up

Clear and useful guidance on that page for those who "registered for Corporation Tax BEFORE their accounting reference date" (ie do NOT file a CT600 for the initial dormant period).

Not so good for those (as in my case) who "did not register for Corporation Tax before their accounting reference date" (ie prepare one CT600 for the dormant period, and another for the trading period).

See the problem with the advice in that second scenario? The dormant period Ct600 should (in my case) have been filed by mid-April 2021.

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Replying to I'msorryIhaven'taclue:
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By Paul Crowley
25th Nov 2021 11:21

Whoever writes this stuff has not dealt with HMRC as a "customer"
CT returns get issued whether client "registers" or not
Does anyone actually register for CT
What exactly is registration
There was in the past a requirement to notify commencement of trading.
A club might need to register as HMRC have not heard of them, but companies get sent their CT UTR direct from companies house

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Replying to I'msorryIhaven'taclue:
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By Wanderer
25th Nov 2021 11:24

I'm sorry wrote:

The dormant period Ct600 should (in my case) have been filed by mid-April 2021.

See my 25th Nov 2021 11:20 post.
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By HiddenAccountant
25th Nov 2021 08:22

So, I am probably going to get told off for this on here but this is how I've dealt with it for a long time and no issues so far. And yes I do understand, strictly it is incorrect.

The reality is, unless HMRC were advised of the dormant period, a CT600 is expected so there is the hassle of notifying HMRC of that.
If the CT600 if files only for the trading period and not the dormant period then a penalty will be issued. I have never seen a penalty held up if you tell HMRC that the company was dormant however, again it's the hassle if having to appeal etc.

So this is how I would deal with your example:

1. Submit the Accounts and all the numbers and generate the CT liability on the first CT return for the period 15 Dec 2019 to 14 Dec 2020.
We're now in November so the CT600 will be in time. Perhaps some can remind me but I think it's interest only charge and no penalty for late payment of any CT.

2. Submit a dormant CT600 (or equivalent) for the period 15 Dec 2020 to 31 Dec 2020.

These are the dates I believe HMRC would have issued for the CT600's.

I do know strictly it is incorrect and perhaps there are other issues I have not considered in doing this but it avoids all the hassle with dormant period, possibly hours in the phone. You could argue, a letter to advise dormant period would take 10min but in the past HMRC have still issued a penalty as they had no record of the letter advising of the dormant period and trading start date.

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Replying to HiddenAccountant:
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By Wanderer
25th Nov 2021 10:09

Bit of a high risk strategy. You are declaring a period of non trading in the middle. Could easily have repercussions down the road.

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Replying to Wanderer:
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By I'msorryIhaven'taclue
25th Nov 2021 11:26

Thanks HA, that sounds like the workaround if the company had commenced trading on the day it was born:

https://www.gov.uk/first-company-accounts-and-return/trading-from-set-up

Except that strike out the dormant latter period mid-Dec 2020 till 31st Dec 2020 and replace with trading accounts. Wanderer, there's a certain lack of clarity about my original question (I was a bottle of red in) so just to be clear the company traded from mid-April 2020 until 31st December 2020 (and indeed is still trading).

I'd have to knowingly and falsely time apportion the profits across a non-trading period. So no dice, I'm afraid. (Even if I were so inclined, this particular client is a cert to be *pulled for something or other further down the line. Repercussions galore!)

*(For example, there's a large BBL based on projected trade; not to mention a second company's BBL gets tipped into the bank a/c after-date)

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Replying to I'msorryIhaven'taclue:
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By Wanderer
25th Nov 2021 11:30

You're still barking up the wrong tree.
See my 25th Nov 2021 11:20 post.

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Replying to Wanderer:
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By Tax Dragon
25th Nov 2021 11:45

Wanderer wrote:

You're still barking up the wrong tree.
See my 25th Nov 2021 11:20 post.

Adding your own +1 to your previous comment? To be fair, it was such a good point it was worth making it twice (any Dwarfers out there?)

I'll +1 both anyway :-)

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Replying to Wanderer:
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By I'msorryIhaven'taclue
25th Nov 2021 12:07

Found it, thank you.

This thread's batting order is all over the shop!

I'm awarding you 10 bonus points.

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By Paul Crowley
25th Nov 2021 09:39

HMRC did a flip flop on assumptions a while back
Firstly, Assumed trading unless told othersise
Then, Assumed not trading, with a £200 penalty for fairly to notify
Then. Assumed trading unless told otherwise

The current system needs human intervention but fails miserably for new cos, particularly for what they call flat management companies.
There is less admin in submitting zero returns than trying to get HMRC to get it sorted
I would submit the returns there are expecting
Any missing returns will get the automatic penalty
Yes you can appeal or phone or write (several times) but it takes forever and in the mean time client will assume it is all your fault if you cannot sort it all out in 10 minutes

For your position I would just enter start date as date of incorporation.

2 returns and 2 liabilities

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Replying to Paul Crowley:
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By Tax Dragon
25th Nov 2021 09:52

Last time I was in anything like this position I did sort it in 10 minutes. With a phone call.

It was pre-pandemic.

The outcome was doing what Matrix said and Wanderer implied. But I'd agreed it with HMRC upfront and no funny business ensued.

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Replying to Tax Dragon:
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By Paul Crowley
25th Nov 2021 10:58

Last 2 that needed sorting
Person on phone said that both needed to go to the back room and please do not call back for at least three weeks
That was over 2 months ago
No action yet

By letter I have several that were sent at least twice and second letter always at least 6 months after first
A couple did get done on second request but at least 4 will need a third contact
But based on above phone call I expect nothing other than outrageous further delay
Waste of time comparing then and now

Two are for companies that changed accounts dates but HMRC have not noticed
The pont is that a human must fix it and the CT computer chugs on producing penalties that just waste time getting resolved

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
25th Nov 2021 11:47

Thanks TD,

You've jogged me into remembering that last time I came across this situation a helpful chap at the company's local corporation tax office fixed matters over the phone (probably on a Friday afternoon). Which was of course some years ago.

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Replying to Tax Dragon:
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By rmillaree
25th Nov 2021 12:25

Tax Dragon
"Last time I was in anything like this position I did sort it in 10 minutes. With a phone call."

That solution works for me every time - very rarely you get a stupid advisor who doesnt understand how the system works but call saying dormant till xth april trading from xth april + 1 and confirm first period end end date - dates are aligned and you can file job done.
Its not the end of the world if you file first with your known correct dates then ring up to get aligned but historically some returns used to stick if starts dates didnt match (that may be fixed now) - and i would rather know hmrc are in agreement with my plan before filing - just in case they change their rules (again)

Any penalties are automatically removed for superseeded periods - or if they arent automatically removed scoop up with next phonecall to hmrc services. I have never needed to formally appeal a penalty for superseeded period ever.

Note some numpty advistors get confused if you give the impression that "dormant acounts may to be filed at companies house " so ensure you make it clear that is simply non trading period for which no ct600 was due. Note if you do want changes and there is a period of dormant accounts that does need filing at companies house that filing should be done fists before contacting ct services as they they are highly likley to check and demand that filing is done fisrt (reasonable request IMHO with amount of fraud going on.

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Replying to Tax Dragon:
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By rmillaree
25th Nov 2021 12:25

Tax Dragon
"Last time I was in anything like this position I did sort it in 10 minutes. With a phone call."

That solution works for me every time - very rarely you get a stupid advisor who doesnt understand how the system works but call saying dormant till xth april trading from xth april + 1 and confirm first period end end date - dates are aligned and you can file job done.
Its not the end of the world if you file first with your known correct dates then ring up to get aligned but historically some returns used to stick if starts dates didnt match (that may be fixed now) - and i would rather know hmrc are in agreement with my plan before filing - just in case they change their rules (again)

Any penalties are automatically removed for superseeded periods - or if they arent automatically removed scoop up with next phonecall to hmrc services. I have never needed to formally appeal a penalty for superseeded period ever.

Note some numpty advistors get confused if you give the impression that "dormant acounts may to be filed at companies house " so ensure you make it clear that is simply non trading period for which no ct600 was due. Note if you do want changes and there is a period of dormant accounts that does need filing at companies house that filing should be done fists before contacting ct services as they they are highly likley to check and demand that filing is done fisrt (reasonable request IMHO with amount of fraud going on.

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
25th Nov 2021 11:43

Thanks Paul, that's useful to know. So the Revenue's current default is that the company was trading from Day 1 (*unless told otherwise), if I understand you correctly.

*(I wonder whether the company's VAT registration date, April 2020, would count as indirectly informing HMRC of the commencement of trade date?)

I'm tempted, and shifting the profit from one fiscal year to another certainly wouldn't cost the Revenue anything. That way the first CT600 would be due for filing by mid-December 2021 (and the second, with time apportioned profits) by end of December 2021.

However my gut feeling has been to cross t's and dot all i's with this job. The BBLs sail a bit too close to the wind for my liking; and I've only just noticed an electric car bought and paid for after-date (with 100% input VAT claimed, to boot!). That's sufficient to make me want to do things by the book - a £200 late filing penalty has just paled suddenly into insignificance!

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By Paul Crowley
25th Nov 2021 09:47

https://www.gov.uk/tell-hmrc-your-company-is-dormant-for-corporation-tax

Tried it once and it worked, within days
No human needed
It removed the 2021 return

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
25th Nov 2021 11:49

Way to go! Thank you, Paul.

Now I wish I'd started reading this thread from the bottom upwards!

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Replying to I'msorryIhaven'taclue:
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By Tax Dragon
25th Nov 2021 11:58

Let us know if it works. (I ask because my guess is that it won't let you tell HMRC that the company used to be dormant. But I'd like to know for sure.)

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Replying to Tax Dragon:
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By I'msorryIhaven'taclue
25th Nov 2021 12:10

Will do. I'm going to check with the director first whether the start date he's given on his VAT registration application differs from what I have.

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Replying to Paul Crowley:
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By Matrix
25th Nov 2021 12:08

I tried this but couldn’t see the option to advise when the company started trading, only when it ceased trading.

I would just call HMRC and get the return for the dormant period cancelled.

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By Wanderer
25th Nov 2021 10:47

Edited!

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