Making a company dormant

[mercede5]

Our current financial year will end at the end of December. We are no longer trading and have spent the last six months sorting out the premises which finally went at the end of last month.
As of now the only transactions that will be going through the bank account are Bank Fess, Accounting Software Fees, Accountant Fees and a bounce back loan.
It is the bounce back loan which is the only reason we now have a company bank account, but we pay this back from our personal money that we transfer into the company account monthly.
Would we be able to make the company dormant in January with these transactions still going through?

Many Thanks

 

[Ozzy]

I have moved this thread to the legal and insolvency forum, as I don't believe making the company dormant is the right direction you should be considering and better qualified experts will be able to expand on that.

 

[DontAsk]

It is the bounce back loan which is the only reason we now have a company bank account, but we pay this back from our personal money that we transfer into the company account monthly.

Why?

Is it covered by a personal guarantee?

 

[mercede5]

There’s not personal guarantee on the loan, but I didn’t think we could just stop paying it without consequences

 

[DontAsk]

There’s not personal guarantee on the loan, but I didn’t think we could just stop paying it without consequences

The debt belongs to the company. I assume it is a company, e.g. a Ltd.

Yes, there will be consequences (for the company, noy you) but if the company cannot pay its debts then you have to ask is it really solvent and can/should it be made dormant?

If you are no longer trading why do you want to keep the dormant company?

What do you intend to do with the dormant company in the future?

Sounds to me like you may be throwing good money after bad.

 

[jimbof]

To me it seems the main reason to do this would be if you weren't confident of the circumstances around the BBL - whether the application and use of the funds would stand up to scrutiny.
With the BBL in place they're not going to manage to get it struck off without liquidation, and the liquidators have a duty to look into the BBL, too.
I suppose liquidation would make sense if the BBL amount and ongoing costs is significantly more than the cost of liquidation, AND the circumstances around the BBL are totally clear.
If there's any doubt then paying it down doesn't seem a bad idea, and as a tax payer I applaud it.

 

[mercede5]

I have no concerns about them looking at how we spent the loan, it was all legit and I have the proof they may require.
It was more that we don’t have much left on the loan and it seemed cheaper and easier to just finish paying it off rather than the costs of liquidation.
It should be paid off in 12 months and I was trying to reduce accounting costs in the mean time.

 

[Daybooks]

The answer to your question is no for Companies House and no for HMRC.

To be dormant for Companies House you can only have filing fees and some share capital transactions for the accounting period. Other than updating the S.I.C. code there is no notification required to be given. You still need to file the required accounts.

To be dormant for HMRC and thus corporation tax you simply need to notify them of the fact. However this requires you to have ceased trading and have no income or expenditure that is going to have to be reported on a corporation tax return. Thus if you are incurring expenses then you are not dormant for HMRC purposes. You always need to complete a tax return (or advise) if you have a tax liability regardless of notifications given or received. You would have to ‘make’ those payments not go through the Company but that probably opens a can of worms that doesn’t outweigh any perceived benefit of dormancy.

 

[jimbof]

I have no concerns about them looking at how we spent the loan, it was all legit and I have the proof they may require.
It was more that we don’t have much left on the loan and it seemed cheaper and easier to just finish paying it off rather than the costs of liquidation.
It should be paid off in 12 months and I was trying to reduce accounting costs in the mean time.

Carry on then. Better pay what's owed than line an IPs pockets for no good reason! Plus in the future you won't have a liquidated company against you as a director.

 

[mercede5]

Carry on then. Better pay what's owed than line an IPs pockets for no good reason! Plus in the future you won't have a liquidated company against you as a director.

That’s frue

Carry on then. Better pay what's owed than line an IPs pockets for no good reason! Plus in the future you won't have a liquidated company against you as a director.

thank you for your advise. I was also not keen on have a liquidated company against me!

 

[mercede5]

The answer to your question is no for Companies House and no for HMRC.

To be dormant for Companies House you can only have filing fees and some share capital transactions for the accounting period. Other than updating the S.I.C. code there is no notification required to be given. You still need to file the required accounts.

To be dormant for HMRC and thus corporation tax you simply need to notify them of the fact. However this requires you to have ceased trading and have no income or expenditure that is going to have to be reported on a corporation tax return. Thus if you are incurring expenses then you are not dormant for HMRC purposes. You always need to complete a tax return (or advise) if you have a tax liability regardless of notifications given or received. You would have to ‘make’ those payments not go through the Company but that probably opens a can of worms that doesn’t outweigh any perceived benefit of dormancy.

That so what I was thinking. Thank you for taking the time to reply.

 

[Lisa Thomas]

How much is owed on the BBL? Are there any other debts outstanding like final HMRC taxes, or redundancy to employees?

Are there any assets? Do any of the directors' owe the company for overdrawn director loans?

 

[mercede5]

How much is owed on the BBL? Are there any other debts outstanding like final HMRC taxes, or redundancy to employees?

Are there any assets? Do any of the directors' owe the company for overdrawn director loans?

There are no overdrawn Directors loans, no redundancies or taxes to hmrc or other debts.
There are no assets. The bounce back loan owed back is just over £3000

 

[Lisa Thomas]

The it would not be cost effective to liquidate the company.

You might be better off looking to follow the dissolution procedure instead. the bank will automatically object leaving the company in limbo for a while but it should eventually go through.

See here for details:

Guidance for limited companies, partnerships and other company types

Guidance about registering, filing and disclosing information with Companies House.

www.gov.uk

Please note you are not obligated to pay the BBL back personally.

 

[Tables Force]

Carry on then. Better pay what's owed than line an IPs pockets for no good reason! Plus in the future you won't have a liquidated company against you as a director.

In what way is a liquidated company 'worse' than a company that was struck off?

 

[jimbof]

In what way is a liquidated company 'worse' than a company that was struck off?

It seems obvious to me; if in future someone looks into your stewardship of companies involved with (perhaps working out whether to give you a line of credit for a future enterprise) - a company closed via strikeoff without any objections raised is quite obviously much less of a red flag than a company closed with liquidators involved, with no declaration of solvency, leaving debts behind.

Of course, you could liquidate the company with a declaration of solvency and that also would not raise red flags; but that would involve paying the debts and an IP. You'd only want to do that if you needed to - eg because you needed to do it to claim Entrepreneurs's relief on funds that were held in the business. And that is >not< the kind of liquidation that was being talked about here. The discussion here was from folk suggesting to try and dump the BBL obligations.

 

[Lisa Thomas]

It seems obvious to me; if in future someone looks into your stewardship of companies involved with (perhaps working out whether to give you a line of credit for a future enterprise) - a company closed via strikeoff without any objections raised is quite obviously much less of a red flag than a company closed with liquidators involved, with no declaration of solvency, leaving debts behind.

A DOS only applies to a solvent Liquidation.

Of course, you could liquidate the company with a declaration of solvency and that also would not raise red flags; but that would involve paying the debts and an IP.

Please explain why you think a Director would be personally responsible to pay a company's debts in an insolvent Liquidation?

(FYI In a solvent liquidation the director would not pay the company's debts. The Company would pay its creditors off in full, usually prior to liquidation.)

You'd only want to do that if you needed to - eg because you needed to do it to claim Entrepreneurs' relief on funds that were held in the business.

Entrepreneurs Relief no longer exists since 2020.

 

[jimbof]

A DOS only applies to a solvent Liquidation.

I know. My point was there is a difference between seeing a voluntary liquidation with one to seeing an insolvent liquidation without.

Please explain why you think a Director would be personally responsible to pay a company's debts in an insolvent Liquidation?

They're not. But it becomes a matter of public record the circumstance in which their company closed, so while they're not personally responsible, they can freely choose to just make a loan to the company so the company pays the debt off, and then walk away from it and let company get struck off. If it were me and the sum of money was so small I'd do the same; pay it off and let the company get struck off just owing me money, avoiding any question of investigation of the BBL etc.

(FYI In a solvent liquidation the director would not pay the company's debts. The Company would pay its creditors off in full, usually prior to liquidation.)

Read what I wrote. I did not say the director would, just that they would be paid (not by whom).

Entrepreneurs Relief no longer exists since 2020.

Splitting hairs, but sure. BADR now (that Govt's own site says is the replacement of Entrepreneurs relief). Same point and reason for doing a voluntary solvent liquidation though; doing it because there is a tax carrot which makes it worthwhile.

Honestly I'm a little surprised by the stance here. Letting the company shuffle off it's mortal coil only owing the Director seems an eminently honourable and reasonable thing to do; the OP gave no indication the payment of this was causing them distress or issue; and it's not much money in question.

 

[Lisa Thomas]

Letting the company shuffle off it's mortal coil only owing the Director seems an eminently honourable and reasonable thing to do; the OP gave no indication the payment of this was causing them distress or issue; and it's not much money in question.

That's what I advised above.

I replied to your points because you seem to have muddied the waters by referring to a solvent liquidation, which doesn't apply to these circumstances and is therefore a red herring and could be confusing to anyone reading the comments.

 

[jimbof]

That's what I advised above.

I replied to your points because you seem to have muddied the waters by referring to a solvent liquidation, which doesn't apply to these circumstances and is therefore a red herring and could be confusing to anyone reading the comments.

I was replying to the post that quoted me asking about why strike off would be preferable to liquidation, and making the point that not all liquidation would be bad, but insolvent liquidation would be worse than strike off in this instance.