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How you can legally get away with not paying Corporation Tax

September 22, 2010 by Elaine Clark

Amazingly, a change in policy means that if Companies House compulsorily closes your company you could avoid paying any Corporation Tax you owe.

How? It seems that Companies House has adopted a new approach to closing a limited company (by a process known as “striking off”) if that company does not complete an annual return.

An annual return, of course, is a snapshot of certain company information at the made-up date (ie address of registered office, details of directors etc). It is different to the company accounts and 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 £1,500 for private companies.

For clarification, I telephoned the Companies House helpline and was told: “We changed this in about August 2009. If companies do not reply to our letters, we begin the ‘strike-off’ after about two to three months. The change was as a result of a policy decision – not a change in law.”

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.

Because Companies House took this action, the directors or shareholders have not avoided their duties to inform creditors.

So let’s just say you have a company that has traded, made a profit but for whatever reason 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 while HMRC is told of these compulsory closures, it is not doing anything about them.

It could easily stop the close down until it has the final accounts and tax paid by the limited company.

Why doesn’t HMRC do something about it? That’s the question I would love to have answered.

Should HMRC do something? Well in my opinion – yes. At the moment, in this regard, HMRC is avoiding collecting taxes. Mind you – should we be surprised about another HMRC fiasco?

Footnote

While I totally disagree with the ethics behind owners of companies taking advantage of this loophole, 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’m sure there will be a few who will enjoy making use of this loophole.

Elaine Clark, www.cheapaccounting.co.uk

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