Dormant company expences

[SimonMac]

*cough*

(To not deviate too far into ban hammer land in the professional forums, no you can't expense cough medicine, if your company is dormant or active)

[Goggy]

expenses

Depends on what you mean by dormant. A company that is classed as dormant on companies house cannot trade. I blieve it could still pay accountancy fees, but I don't know why you would as you'd not be able to claim VAT back or claim any losses back against CT.

If truly dormant then I'd not want to pay an accountant as they have nothing to do as no returns are needed.

read this Dormant companies and associations - GOV.UK

Why not just close the company? Unless you really want to keep the company for the sake of vanity I don't see why you'd keep it dormant.

Thank you, but if I follow the link you've provided, it says:
"Your company or association may be ‘dormant’ if it’s not doing business (‘trading’) and doesn’t have any other income, for example investments."
I don't see anything that explicitly says that expenses are not allowed ..

[BR14]

so what answer do you want to hear?
it'll save time and effort if you tell us this up front.

[AR Tax]

My accountancy says that it's ok for the dormant company to pay accountancy fees, bank account charges. All the articles I read on the topic contradict this, but I can't find any official information
Can you please advise where to find a definitive answer
(a particular hmrc doc for example)

Thank you

I think this has been mentioned on this forum many times before however just to reiterate this point because I agree with it, dormancy from a companies house point of view means no significant transaction. Examples of non-significant transactions are the £13 confirmation statement, companies house penalty, money paid for shares on incorporation: Dormant companies and associations: Dormant for Companies House - GOV.UK

Therefore if your company has expenses such as bank charges, accountancy fees, mobile phone contracts, travel going to interviews, etc strictly it wouldn't be dormant. It is a bit like an empty shop. Just because the shop has no customers inside it doesn't mean the shop is dormant.

There was an interesting first tier tax tribunal case about a company that had been claiming expenses without raising any sales invoices for several years and then the shareholders went on to claim entrepreneur's relief: http://financeandtax.decisions.tribu...09/TC07348.pdf
HMRC lost and the ER was allowed.

If the reason you are keeping your company open is because you are still considering whether or not you want to do an ER claim then it is worth noting that the conservatives will be reviewing ER (see their manifesto) as they don't think it is doing its job, i.e. encouraging entrepreneurs. I believe ER costs the government around £2 billion per year (i.e. double what HMRC thinks IR35 non-compliance costs them). So I am not sure if ER will still be around after the October 2020 budget. Only time will tell. Although I would expect the 20% CGT rate to remain.

[Goggy]

I think this has been mentioned on this forum many times before however just to reiterate this point because I agree with it, dormancy from a companies house point of view means no significant transaction. Examples of non-significant transactions are the £13 confirmation statement, companies house penalty, money paid for shares on incorporation: Dormant companies and associations: Dormant for Companies House - GOV.UK

Therefore if your company has expenses such as bank charges, accountancy fees, mobile phone contracts, travel going to interviews, etc strictly it wouldn't be dormant. It is a bit like an empty shop. Just because the shop has no customers inside it doesn't mean the shop is dormant.

There was an interesting first tier tax tribunal case about a company that had been claiming expenses without raising any sales invoices for several years and then the shareholders went on to claim entrepreneur's relief: http://financeandtax.decisions.tribu...09/TC07348.pdf
HMRC lost and the ER was allowed.

If the reason you are keeping your company open is because you are still considering whether or not you want to do an ER claim then it is worth noting that the conservatives will be reviewing ER (see their manifesto) as they don't think it is doing its job, i.e. encouraging entrepreneurs. I believe ER costs the government around £2 billion per year (i.e. double what HMRC thinks IR35 non-compliance costs them). So I am not sure if ER will still be around after the October 2020 budget. Only time will tell. Although I would expect the 20% CGT rate to remain.

Thank you. I'm considering making it dormant as I might resume trade in 1/2 -1 years. I use SJD. Their position is that accountancy fees & bank charges are allowed for a dormant company, but I don't find any proof to that. If I don't trust this advice, I can try to change the accountancy, but not sure:
a) if that makes sense at this point
b) how the other accountancies handle dormant companies (most probably they are charging some fee for that too..)

[AR Tax]

Thank you. I'm considering making it dormant as I might resume trade in 1/2 -1 years. I use SJD. Their position is that accountancy fees & bank charges are allowed for a dormant company, but I don't find any proof to that. If I don't trust this advice, I can try to change the accountancy, but not sure:
a) if that makes sense at this point
b) how the other accountancies handle dormant companies (most probably they are charging some fee for that too..)

Send them the link to this thread or the Gov.uk link about dormant companies not being allowed to have significant transactions (accountancy and bank charges are not listed as non-significant) and see what they say.

Ask them if they will carry back any loss incurred on accountancy and bank charges to the previous accounting period in order to claim a corporation tax refund.

If you are continuing to look for contracts and expect to secure one in the next 6 - 12 months it sounds like your company is probably not dormant.

By now you probably understand your company won't be dormant because it will have significant transactions and is still trying to trade. So what are you trying to get out of mistakenly calling your company dormant? Is it to secure a lower accountancy fee? If you are trying to secure a lower accountancy fee, why not ask them about a lower accountancy fees rather than dormancy?

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[Lance]

Thank you, but if I follow the link you've provided, it says:
"Your company or association may be ‘dormant’ if it’s not doing business (‘trading’) and doesn’t have any other income, for example investments."
I don't see anything that explicitly says that expenses are not allowed ..

I know. That's why I asked if you'd want tp pay expenses given that you cannot claim any tax back as a loss. Or VAT.
You can make it dormant, and still pay your accountant but I don't understand WHY. WHat is the result you're trying to achieve?

[Lance]

Thank you. I'm considering making it dormant as I might resume trade in 1/2 -1 years. I use SJD.

Just close the company. Sack SJD.
And if you want to start again use a better accountant. It takes a day or two to open a new company and think of the 1 year accountancy saving.

[Goggy]

WHat is the result you're trying to achieve?

I wasn't trading recently and I won't be looking for another contract in the next 6 months, but there are chances that I will after that.
So
a) I can make the company dormant thus wil be able to quickly make it active when needed + relatively low accountancy fees over that period
b) I can close the company, but that means liquidation that 1) costs 2000+VAT 2) takes a few months 3) It'll take longer to create new company (as needs not only formation, but all the other bits too: new accountancy, vat registration, new domain etc)

So going via dormant company route seems a better option, but due to the precarious situation re fees&charges, I'm not sure if to proceed

[Maslins]

I think there's a fair bit of confusion over what dormancy means.

If you stop invoicing for 6 months, that doesn't in itself mean your company is dormant. HMRC will still expect monthly payroll, quarterly VAT, annual accounts/CT etc. In reality the filing responsibilities (hence typically accountancy fees) don't reduce much.

You can potentially de-register your company as an employer and/or for VAT. This is a bit more work in the short term to do those. It does however then mean you don't have to file monthly payroll/quarterly VAT. It does also mean if you want to start invoicing again, with VAT, and take a salary, that you need to re-register as an employer and for VAT.

Even if you de-register for all company taxes and officially make your company fully dormant, as a minimum you'll still need to file annual accounts and confirmation statement with Companies House.

Also worth highlighting at least as things stand, FreeAgent can cope with a company registering for VAT, and de-registering for VAT, but it can't currently cope with a company then re-registering for VAT.

So in practice we feel any attempts at dormancy for maybe 6-12 months aren't worthwhile. We'd recommend either:
1) keeping things ticking over fully. On the plus side then you can very quickly restart invoicing as/when you want. On the down side even while you're not invoicing you've got regular filings to do, hence likely accountancy fees.
2) close it down. On the plus side, reduces/eliminates long term filings, hence accountancy costs, plus possibly tax breaks upon closure. On the down side, more short term effort, plus may then require a new company set up with all accompanying registrations later.

If you expect <12 months without invoicing, we'd suggest the former. If you expect >12 months without invoicing, we'd suggest the latter.