Dis-incorporation and not-for-profit online tax savings

With only nine months until the start of mandatory online filing of corporate tax returns (i.e. Forms CT600) it is now time for the smallest of companies and organisation to take stock of the situation. For those companies and organisations retaining the use an accountant very little will change – except that from 1 April 2011 all tax liabilities must be made electronically.

Unfortunately those most likely to be affected by the mandatory online filing are the very smallest of the ‘not for profit’ organisations who will shortly find themselves facing one more hurdle to jump in order to inform HM Revenue & Customs that they have nil tax to pay.

In fitting with the small scale of activities and community aims of an organisation it may have previously fallen on the Treasurer or a active member (usually a retired accountant) to file a ‘nil’ CT600 annually with HM Revenue & Customs. So will this be the final straw forcing you to pay many hundreds of pounds to an accountant?

There is some time to consider the matter as the first year end to be caught by the rules are the 12 month accounts to 31 March 2010. There is also a way of avoiding the online filing for one more year.

In summary those organisations now caught by online filing include:

  • Charities
  • Community Amateur Sports Clubs
  • Members Clubs
  • Voluntary Associations, i.e. community groups, etc,

In addition there is a subset of companies that may be caught unaware. For example where previously a director or finance department accountant has prepared and filed the simplest of documents themselves. This would commonly include the following situations:

  • Companies registered for brand name or trading name protection
  • Dormant companies (either set up and never used or those now ceased trading)

If you do not engage an accountant and do not want to pay their fees then the relevant link that you need to follow is included on my page HMRC Links and tools under the heading Online corporate tax filing.

File early to save costs

There is good news however if you are prepared to file your returns early because the mandatory online filing only applies to forms submitted on or after 1 April 2011. If you have for example a December year end you can file a paper return before 1 April 2011 and defer the cost of accountant’s fees until the following year.

Therefore the message is clear – if you fall into the above situations – then file early and also start winding up any unwanted companies.

To dis-incorporate or not?

If you operate as a sole shareholder/director company or small two person team then also consider the merit of whether trading through a company is still tax and cost efficient. Numerous companies were set up when a company could make £10,000 of profit without paying corporation tax but then HM Revenue & Customs changed the rules.

The reality of the situations is that if you take less than £18,000 or salary and dividends from your company annually then consider dis-incorporating – and the reason?

Well, the ComLib Government has set out to increase personal tax free allowances from £6,475 (2010/11) to £10,000 in the next four years and employee and employers national insurances rate are increasing. Plus the small company tax rate is reducing from 21% to 20% which works for and against the company position.

Therefore it’s 50:50 on whether you may be better off dis-incorporating on a tax basis but do remember that accountancy fees are a lot more expensive for a company than if you trade as a sole trader or in partnerships.

There is a lot to consider and so get the right advice.

copyright ©2010

This article is for discussion purposes only and does not represent advice on which you should act without consulting a professional as tax legislation is complex and changes frequently.

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