Is Your Business In Sleep Mode? Critical Issues For Dormant Companies

Currently, the IR35 is heating the public sector and is affecting a lot of NHS doctors that are working as a locum via limited companies. Because of IR35, the trust or the agency are using the blanket approach to push everyone into either PAYE or umbrella companies.

As a result, lots of locums would stop using limited companies. Those companies would be inactive. And some of them are even considering closing down their companies to avoid the hassle. However, setting companies aside doesn’t mean no responsibilities at all. Here are some critical issues you may need to be aware of.

What defines a company as inactive?

A dormant company is a company that does not have any activities, there are no major transactions apart from minimal transactions if there is a bank account still open and the bank is still charging a fee.

If you have any activities even though you have any money coming in but you still have a pile of cash and are still running payroll out of the company then your company is not dormant. It just means you do not have any sales coming in but you still incur payroll costs. You still have to file a full set of accounts, the company tax return and declare what a standard company needs to declare.

Filing Confirmation Statement

If your company qualifies as dormant, it doesn’t mean you do not need to do anything for the company. For instance, every limited company is required to fill a confirmation statement once a year. A confirmation statement is a replacement of annual return. The detail is very similar to any return, it confirms who are the shareholders/directors are, the address and it makes sure all information is up-to-date. You would also need to declare the people with significant control, this is not only the shareholder but the person who has more than 25% of shares. If you file the confirmation statement online then there is a fee of £13 but if you file it by paper then you need to pay £40.

If you forget or do not file the confirmation statement there is no penalty. It is your responsibility as director to file it on time, if you leave it for a while then Companies House will assume your company is no longer trading so they will automatically dissolve your company.

Filing Company Accounts

If your company is dormant then of course there is no transactions and no activities but you still need to file dormant company accounts. You still need to declare how much shares your company is holding and some basic information. The format is much simpler than the normal set of accounts but it is still something you need to file. It needs to be filed within 9 months after the accounting period.

Responsibilities to HMRC

For a dormant company, by law corporation tax is not required, but it is still your responsibility to let HMRC know the company is dormant, or simply file a nil Corporation tax return to fulfill the requirement. If you do not file the company tax then they will still issue the penalty.

This applies to companies that are VAT registered as well, you still need to file your quarterly VAT return except you would put everything as zero.

What happens with your self-assessment?

This mainly relies on your personal circumstances. If you do not have any dividends income to declare and everything goes through PAYE, even if you think you do not need to file a self-assessment, it is better to let HMRC know rather than leaving it.

Closing down the company

If you think you will never use the company again, in order to reduce the hassle of having to take on all these responsibilities, you might decide to close down the company completely. For most contractors, if their net assets are less than £25,000 then the majority of the time they do qualify for the striking off process. It is important to check with Companies House to see if you do qualify for the striking off process.

There may be issues that will affect this such as if you still have payment arrangements with creditors then you might not qualify. You would need to go through a liquidator so that they are able to deal with this for you and close down the company.

If your company does qualify for striking off then there is an application on Companies House that needs to be signed by all directors. However, before you do the application you need to de-register for VAT, PAYE etc. Any obligations need to be fulfilled and every order needs to be paid, especially HMRC debt. After this process, you are then able to continue with the application, the company will normally be dissolved within 2 months. Within the 2-month period you need to make sure you close down all business accounts because if you do not all the business assets will go to the crown, which means you end up losing all the money.

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