If you have a dormant company, or are thinking of de-registering your company, it is important to remember that even if there is no income, a company is still obliged to file at least corporation tax. This article sets out the obligations of dormant companies and the consequences of not complying with them.
When is a company dormant?
A dormant company is a trading company that does not engage in any economic activity, a state of lethargy in which obligations become minimal (but not non-existent).
It is critical to understand that a dormant company can NOT be invoicing or receiving income of any kind except extraordinary income.
This new status must be communicated to the Inland Revenue with a de-activation of activity after which the company can be reactivated or liquidated. As long as the company remains inactive, it must file corporate income tax every year.
What happens if I do not file the corporate tax?
It is common to think that by “doing nothing” the company does not have to file any kind of tax, but the reality is that the Inland Revenue does not care.
From the moment a company is incorporated and comes into existence until it is liquidated, whether it is inactive or not, it must file corporation tax. As we have already mentioned in previous articles, the Inland Revenue always wins in this case, they only have to send a notification for failure to file a tax in order to get part of the money of the company or, failing that, of the administrator.
Thanks to the high degree of computerisation of the AEAT, the requirement for not filing the tax is practically automatic and guaranteed. If the company administrator has not ensured that he/she regularly checks the electronic notifications in the name of the SL, he/she will not be aware of this and the penalty will run its course.
When a company has notified the cancellation of its activity to the tax authorities, the way is open for a possible derivation of liability to the administrator, so this cannot be done in a casual manner and professionals should be consulted before notifying the cancellation. A 20% surcharge will be added to the penalty for not filing the tax. If the dormant company does not pay this amount, it may become part of the administrator’s referral file. If the company has also failed to discharge other obligations (filing VAT, personal income tax, etc.), this is a common mistake. Instead of one penalty, there will be several, multiplying the amount of the fine and the surcharge.
Remember that not complying with the tax and commercial obligations of the inactive company also opens the door to the subsidiary derivation for all the debts that may exist and is a stumbling block when reactivating or liquidating the company.
Fulfilling dormant companies’ obligations in a secure manner
Aware of the fact that an inactive company has very specific needs, we offer a specific service in which, after correctly filling out the activity cancellation form, we carry out the corporate tax every year while the company is inactive.
As well as the formulation and presentation of the Annual Accounts.
This service is also complemented by a 24/7 monitoring service for electronic notifications so that no notification goes unanswered.
When is it worthwhile to make a company inactive?
It is a step that should not be taken lightly and even less so when there are debts. Outstanding balances with employees, public administration, outstanding balances receivable or payable, VAT to be offset.
Our recommendation is to assess each case. Make decisions with a clear strategy and a complete vision of the duties and obligations of the company to minimise any risk. Ask for a free consultation with us to evaluate your case.
Photo by Kai Pilger on Unsplash
