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Repercussions of amending dormant accounts

Ideally looking for people's experience of HMRC after incorrectly notifying them of inactivity

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A warm and very humid evening/night to you all!

Thanks in advance for sparing your time and expertise. I'm looking through a potential client's previous accounts filed with Companies House and have discovered their most recent ones (ended 31/10/18) were dormant accounts (which did not match the 16/17 accounts filed). Having spoken to the accountants responsible, they took the client on with only a few days until the deadline and filed dormant accounts in a rush, apparently intending to amend them at a later date (this was never done). HMRC were also notified that no trading had taken place during the period, which they accepted. Apparently, no trading did take place during the period, but even so the balance sheet from the 16/17 accounts has just been completely ignored, plus there will have been payments of tax and possibly other transactions. 

If I subsequently discovered that a Corporation Tax Return should have been filed due to the existence of trading income being earned or relevant purchases being made during the 'inactive' period, does anyone have any experience of how HMRC would treat this? As no previous CT600 has been filed for this period, but a notice of dormancy has been given and accepted, would any return be classed as an amended return? Would HMRC be likely to treat it as a late filing (it's still within the 12 month deadline for filing an amended return)? Finally, if any non-trading expenses were incurred during the period and a CT600 did not in fact need to be filed, is there any way these 'management expenses' could be carried forward and offset against the trading profits once trading started again?

Provided the correct information can be obtained, the actual accounts won't be a problem to produce as the amount of transactions during the active periods is extremely low. I'd just like to try and be as informed as possible regarding the potential repercussions of any correcting actions.

As always, thank you hugely for any advice you can offer.

Replies (12)

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By Paul Crowley
27th Jun 2020 00:03

No such experience

BUT

Was any tax due? If so need to file.

Did the company cease trading? if so losses at that point are probably lost anyway.

Client sounds as if an accountant hopper. Will your work be appreciated? and paid?

Former bad client submitted dormant on a trading company to Co House. Demonstrated trading with 3rd party evidence to Co house (subcontact tax vouchers). Co House absolutely not interested.

Did not bother HMRC as co would have been due a refund of subcontact deductions and no Corp tax liability. No tax evasion, quite the opposite.

New "accountant" advised by me of circumstances, but absolutely certain that new "accountant" filed the dormant accounts and DS01.

Companies house just want tidy files. No point dobbing

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Replying to Paul Crowley:
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By Conniving Badger
27th Jun 2020 18:54

Thanks for your reply, Paul. The company has apparently traded for the 18/19 accounting period but only to the amount of a handful of transactions. The client is still trading and intends to keep doing so for the foreseeable future. I've done work for them in another capacity earlier this year and they were genuine, otherwise I'd be more worried about payment being made.

If no CT is due I won't be filing a CT600 but at the moment I haven't had a chance to take a look at the details. I agree with what you say about Companies House, some of the documents they accept are nothing sort of shocking!

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Replying to Conniving Badger:
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By Paul Crowley
27th Jun 2020 19:40

None of us know what we would do until it happens, But I regularly deal with a prior year issue during current, inevitable in accounting estimates anyway. If HMRC have the tax they are entitled to, does timing really matter?

I search Co house on most people I come in contact with, amazed at the accounts some "accountants" file on their own companies.

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By Tim Vane
26th Jun 2020 23:56

Why are you concerned? Your job surely is to sort out the mess and correct the filings. How much it costs and who gets into trouble is not your worry. Advise the client to claim against the previous accountants PII to help pay any fees or penalties; filing incorrect dormant accounts just to avoid a late filling penalty is a flagrant breach of professional standards.

And I agree with the previous poster: Get your fee up front.

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Replying to Tim Vane:
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By Conniving Badger
27th Jun 2020 18:58

Thanks for your advice, Tim, much appreciated. I fully agree any potential penalties are not my issue, I just wanted to see if anyone here had had any experience with a matter like this so I could be as informed as possible. More for my own benefit than anything else.

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By Matrix
27th Jun 2020 08:09

If you determine it was trading then you will need to ask HMRC to open that period and you should have three months to file (so I assume no penalties but maybe there will be if the original notice to file is reinstated). But won’t the accounts you file be the dormant ones or are you redoing the accounts?

If it is not trading then no relief for any expenditure.

If it has ceased trading then why is he bothering to change accountants and sort it all out though?

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Replying to Matrix:
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By Paul Crowley
27th Jun 2020 08:41

You forgot to add "yet again" to changing accountants
second change, last lot only dealt with dormant accounts intending...
Did client pay prior accountant anything?
Cannot believe client did not know they needed amending.

But absolutely agree why client bothering?

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Replying to Matrix:
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By Conniving Badger
27th Jun 2020 19:05

Thanks a lot, Matrix. I'll definitely be amending the accounts as the current ones are completely incorrect, so that won't be an issue. The company is now trading again and will continue to do so , according to the client. I'll have to see what actually took place during the 17/18 period to be able to make an informed decision.

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By whitevanman
27th Jun 2020 09:58

From a tax perspective, dormant means more than just "not trading".
If HMRC were told the company was / had become dormant, they will not have issued any subsequent notices to file (returns). As no returns have then been made (for whatever periods) you can hardly make an amendment. If you were to now advise them that the company was not in fact dormant, they would (should) issue a notice to file which gives 3 months in which to do so. There would however, be a potential penalty position for failing to notify. The amount is based on tax due, so, if no liability penalty is Nil.
As to "management expenses" (or losses) these can only be established by filing a return. Carry-forward and future use would depend on the usual rules.

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Replying to whitevanman:
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By Conniving Badger
27th Jun 2020 19:27

Thanks for your help, WVM. I've been told by the client that no trading took place during the 17/18 period and no other related transactions either, but I'll need to look at the details myself before I'll know for sure.

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By pauljohnston
01st Jul 2020 09:42

I think you have to be realistic. What amount of tax are you considering if less than say £200 why not include the trading in the current accounts. The Corp Tax rate is still 19% .

HMRC wont thank you for all the extra work it has to do for such a small amount. To cover yourself I would write to corp Tax office and give them the story and advise how you have fixed it.

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Replying to pauljohnston:
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By Matrix
01st Jul 2020 09:51

But you can’t offset the expenses if it has been declared a non-trading period. I agree it depends on the amounts involved whether it is worth opening up the year again.

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