One of your companies has only ever made losses and you want to close it down and have it struck off as soon as possible. The trouble is, accounts for the current financial period haven’t been prepared. Will this cause a problem with HMRC?
Obligation for CT returns
In response to receiving a “notice to deliver” a company return (Form CT603) for a corporation tax (CT) period, companies normally digitally submit to HMRC a CT return plus “Companies Act accounts”, i.e. accounts prepared in accordance with the Companies Act 2006 . Failing to comply with the filing deadline (of twelve months from the end of the CT period) will result in an initial fine of £100, with increasing fines levied as the delay continues, irrespective of whether the company actually owes any tax.
Tip. According to its manuals HMRC will agree to overlook a CT return and even formal accounts where: a company is to be wound up under a members’ voluntary liquidation (MVL); or struck off without formal liquidation using an application under s.1003 Companies Act 2006 . However, different rules apply where a company is in administration, being wound up as a result of insolvency or a creditors’ arrangement.
Tip. It’s worth noting that informal accounts do not constitute a CT return and therefore cannot be enquired into by HMRC.
Timing
A company can only be wound up using an MVL or the strike-off procedure after it’s finished trading (and for the latter option the company must have ceased trading for at least three months). Even if it has significant assets, HMRC will consider foregoing CT returns and statutory accounts as long as it’s satisfied that there’s “no material risk of tax loss”.
Example 1. Bcom Ltd ceased trading in June 2023. Its normal accounting date is 31 December. Bcom’s CT return for its last normal accounting period to 31 December 2022 isn’t due until 31 December 2023. In July 2023 the company’s directors ask HMRC if it can be struck off on 31 October 2023. No CT603 requesting a CT return for the period 1 January to 31 October 2023 will have been issued.
HMRC’s practice would be to accept informal accounts, e.g. management accounts, and forego tax returns for both the year to 31 December 2022 and the period up until the date Bcom became inactive as long as it believes no tax will be lost as a result.
Example 2. The circumstances are the same as in Example 1, except Bcom doesn’t ask HMRC to agree to the strike-off until after 31 December 2023. If the CT return hasn’t been submitted for the year ended 31 December 2022 a penalty will apply and HMRC will insist on formal accounts and a CT return for that period (submitted online). It will, however, accept informal accounts for the period 1 January 2023 to the date Bcom became inactive.
Adding value
Avoiding having to submit formal accounts and CT returns is less hassle for you and for HMRC. Tip. Satisfy the compliance obligations by asking HMRC to give informal agreement to management accounts as soon as possible.
As long as you ask HMRC in time, i.e. before the deadline for submission of a corporation tax return, it will usually accept informal accounts to determine the tax position. This can streamline the process of striking a company off, reducing costs and freeing up more of your time to add value to your profitable business interests.
The next step
CTM93100 - CTSA: the filing obligation: Delivery of return
COM130050 - Returns / notices: notices and returns
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.