Amazingly a change in policy by Companies House means that if your company is compulsorily closed by them you could avoid paying any corporation tax that you owe.
How can this happen?
It seems that Companies House have adopted a new approach of closing a limited company (by a process known as striking off) if they do not complete an Annual Return.
Just to clarify…
An annual return is a snapshot of certain company information at the made-up date e.g. address of registered office, details of directors etc.
It is different to the company accounts and it does not contain any financial data about the company’s performance.
There are no fines for filing the annual return late unlike if you file your accounts late where fines start at £150 and rise to £1500 for private companies.
So why have they taken this approach?
I telephoned the Companies House help line and was told:
“We changed this in about August 2009. If companies do not reply to our letters then we begin the strike off after about 2 to 3 months. The change was as a result of a policy decision and not as a result in a change in law or anything like that.”
What does this mean?
As a result of the action by Companies House to close the company, technically the company no longer exists.
And a company that no longer exists cannot pay corporation tax!
As this action was taken by Companies House then the directors or shareholders have not avoided their duties to inform creditors.
So let’s just say that you have a company that has traded, made a profit but for whatever reason the company has been compulsorily closed down by Companies House then you could just start another one and do the same again!
What is going wrong?
It seems that, whilst HMRC are told of these compulsory closures, they are not doing anything about them.
They could easily stop the close down until they have the final accounts and tax paid by the limited company.
Why don’t they do this?
That is the question I would love to have the answer to?
Should HMRC do something?
Well in my opinion yes – at the moment HMRC are avoiding collecting taxes!
Mind you – should we be surprised about another HMRC fiasco?
Whist I may not agree with the ethics behind this approach, it is legal and done with full knowledge of Companies House and HMRC. So who am I to question it?
Caution – if the company is closed the business bank account will be closed and the money belongs to the Crown as will any other company assets.
There may also be other reasons for not wishing your company to be closed down. However I am sure that there will be a few who will enjoy making use of this loop hole.