RMC - Dormant Status with HMRC - Banking

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    #31
    This is posted on the Companies House website : Dormant companies

    Your company is called ‘dormant’ by Companies House if it’s had no ‘significant’ transactions in the financial year that you’d normally report. Significant transactions do not include:
    • filing fees paid to Companies House
    • penalties for late filing of accounts
    • money paid for shares when the company was incorporated

    Dormant companies that qualify as ‘small’ do not need to be audited.

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      #32
      I found the suggestion that you could get client money accounts without a paid for business account surprising. "Free" personal accounts are a feature of UK banking, but it wasn't always this way, and banks have always made their money from business account charges (most personal account usage involves a business on the other side of the transaction). Banks are not in the habit of subsidising not for profit organisations.

      The Law Commission looked into RMCs recently and they noted that, technically, the cost of the RMC could not be taken from the service charge, but this is commonly done in practice, and proposed legislation that would override leases to make this practice legitimate.

      Accountants tend to ignore money in an account for only a minimum amount of time, and the ICAEW guidelines on service charge accounts say it is an open question as to whether service charge transactions should be shown as going through the company books.

      Companies House doesn't need the income and expenditure accounts, so it doesn't matter for their accounts whether money is treated as going direct from the trust or going via the company. There are, however some subtleties in preparing balance sheets for companies. In particular, in this case, as the bank charges are paid in arrears, there should be a debtors figure for the bank charges that have accrued, at the end of the accounting year, but not actually been paid, and also for the next Companies House fee, which, as the company became liable at the start of the period. They may well get ignored, by accountants, for those particular examples. However the same issues apply for the service charge accounts, if you follow the ICAEW guidelines, e.g. for electricity standing charges not fully used, and usage not yet billed, and for, say, cleaning work done, but not yet invoiced, so anyone taking on the accounts already needs to be familiar with these.

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        #33
        Originally posted by bigalxyz View Post

        Thank you. I think I agree with this - I don't see a way to keep our dormant status at CH. What I don't think I understand is whether or not that's important!
        Anecdotal evidence suggests that there are more than a few flat management companies registered as dormant which, if my view is correct, ought not to be. There are getting on for two million companies in the UK and however many staff there are at Companies House there is no way everything can be checked. I do not think that investigating companies registered as dormant is going to be a top priority. However, the fact remains that if a company is registered as dormant when it should not be penalties may be payable.

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          #34
          Originally posted by eagle2 View Post
          The case for the RMC being dormant is that the service charge funds do not belong to the RMC, the RMC has the ability to "deploy" rather than "enjoy" the funds and service charge transactions are kept in separate accounting records. Tech 03/11 explains further and states that the ICAEW obtained Counsel's advice.
          The enjoy/deploy distinction makes sense inside my brain, certainly...but will it cut any ice with Companies House re: dormant status?

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            #35
            Originally posted by Lawcruncher View Post

            Anecdotal evidence suggests that there are more than a few flat management companies registered as dormant which, if my view is correct, ought not to be. There are getting on for two million companies in the UK and however many staff there are at Companies House there is no way everything can be checked. I do not think that investigating companies registered as dormant is going to be a top priority. However, the fact remains that if a company is registered as dormant when it should not be penalties may be payable.
            Understood. We're in the middle of appointing a new firm of accountants so I'll check this point with them to be on the safe side.

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              #36
              Originally posted by eagle2 View Post
              The case for the RMC being dormant is that the service charge funds do not belong to the RMC, the RMC has the ability to "deploy" rather than "enjoy" the funds and service charge transactions are kept in separate accounting records. Tech 03/11 explains further and states that the ICAEW obtained Counsel's advice.
              I found Tech 03/11. I did a global search for "dormant" and got a zero response - saved me having to read all 40 pages! Whilst it may be the case that flat management companies deploy rather than enjoy funds, it does not change the fact that they engage in transactions.

              It needs to be borne in mind that a company can only ever act through an agent of some sort whether it be an officer, employee or an agent appointed for a specific purpose. I cannot see it makes any difference what the precise status is of the person who does the organising.

              We can also consider Section 1169(3) of the Companies Act 2006. It says:

              In determining whether or when a company is dormant, there shall be disregarded—

              (a) any transaction arising from the taking of shares in the company by a subscriber to the memorandum as a result of an undertaking of his in connection with the formation of the company;

              (b) any transaction consisting of the payment of—

              (i) a fee to the registrar on a change of the company's name,

              (ii) a fee to the registrar on the re-registration of the company,

              (iii) a penalty under section 453 (penalty for failure to file accounts), or

              (iv) a fee to the registrar for the registration of [F1a confirmation statement].

              It does not expressly say that the things listed are the only things to be disregarded, but I think there is an argument that that is the effect on the grounds that if Parliament had intended something wider it would have said so.

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                #37
                Lawcruncher - As I explained in #28 there are strong views for and against RMCs being regarded as dormant companies. That probably explains why there has been no updated statement made by the ICAEW. The current practice adopted by most management companies seems to be to treat them as dormant companies and HMRC accepts them as such. You seem to be putting the case for, I am simply putting the case against which seems to be the majority view at the present time.

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                  #38
                  A big thank you to eagle2, Lawcruncher and leaseholder64 for taking the time to write such detailed replies.

                  I fear I'm at the limit of my understanding now so I think the best thing I can do is to show all of this to our (new) accountants and ask them for guidance.

                  Comment


                    #39
                    Originally posted by eagle2 View Post
                    Lawcruncher - As I explained in #28 there are strong views for and against RMCs being regarded as dormant companies. That probably explains why there has been no updated statement made by the ICAEW. The current practice adopted by most management companies seems to be to treat them as dormant companies and HMRC accepts them as such. You seem to be putting the case for, I am simply putting the case against which seems to be the majority view at the present time.
                    I think we may have been at cross purposes. I do not thnk there is much argument about RMCs and other non-profit making flat management companies being dormant for tax purposes. It is whether they are dormant for company law purposes which is disputed. Sensibly they ought to be as no one benefits from the present system. Indeed, there is a case to be made that non-profit making flat management companies should be a separate type of company altogether with its own set of rules requiring the minimum of administration.

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                      #40
                      The ICAEW stated that the service charge funds should not appear in the balance sheet of the RMC because they do not belong to the RMC. Unhelpfully it was left at that point, there was supposed to be a further statement but it appears that no-one has been able to reach agreement, proposals have been made and then withdrawn, The problem is that if you exclude the bank balance, you cannot then include the bank receipts and payments otherwise the accounts would not balance and they would be meaningless. The consensus view of the accountancy profession seems to be that all service charge transactions should be dealt with separately and excluded from the RMC accounts, which usually leaves nothing remaining and the RMC being dormant. Small items of income and expenditure are often placed in the service charge accounts in order to retain the dormant status.

                      I agree entirely with Lawcruncher, I have had lengthy discussions with accountants arguing that a RMC cannot be dormant but the consensus view of the accountancy profession is that it is. Practically, it saves the cost of producing detailed statutory accounts and accountants reports for the RMC,

                      I don't think that Companies House is remotely interested in whether a RMC files dormant accounts or accounts as a micro entity as long as some accounts are filed on time. I am not aware that it has taken any action against any RMC, which could point to numerous other examples of RMCs filing dormant accounts. There would have to be some form of general statement first. I suspect that if a member of the RMC raised a complaint with Companies House, he/she would be invited to take it up with the Company and Companies House would not wish to become involved.

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                        #41
                        The Banks seem to be changing their stance. They seemed to be happy to hold funds, which can be substantial, without paying any or much interest and not to charge for transactions.

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                          #42
                          Originally posted by bigalxyz View Post
                          A big thank you to eagle2, Lawcruncher and leaseholder64 for taking the time to write such detailed replies.

                          I fear I'm at the limit of my understanding now so I think the best thing I can do is to show all of this to our (new) accountants and ask them for guidance.
                          If you pay all service charge money from leaseholders into one "client account" and use same bank account for paying all maintenance bills, then you will satisfy Companies House's requirement for keeping the RMC as a "dormant company".

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