New corporation tax statistics are out from HMRC this morning. They can be looked at from all sorts of directions of course, but one of my questions always relates to basic credibility.
A basic way of testing credibility would be, in my view, to check that it seems likely that the corporation tax system is likely to capture data on a very good proportion of all the companies that are likely to owe this tax. So i did some calculations comparing table 11.3 on the number of companies declaring taxable income to HMRC with the number of companies recorded at Companies House (some data from here). HMRC only have data up to 2012-13. This is the data:
Let's out that another way. This is data on the number of companies not declaring taxable income over that period:
It was pretty staggering that there were claimed to be over 1 million dormant companies at the turn of the century but now there are nearly 2 million.
I have to be candid: I don't believe that. I think there are many more trading than say so. I think it's utterly implausible that this is not the case.
What this implies is this:
Since HMRC's merger the number of companies declaring taxable income has gone down. It's recovering a little but remain at around one third of all companies.
Again, I don't believe that is the number that should be.
There is more on this here including why I think at least 400,000 of these supposedly dormant companies are trading, which given the data, seems remarkably few.
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I wonder if the rise in the numbers of companies not declaring taxable income correlates at all with the apparent increase in recent years of the self-employed.
Also, and I don’t know if this is representative, but from my experience as an in-house lawyer, several large businesses I’ve worked for have gone through major clean-ups of their corporate structures. For example, one £350m turnover business I worked at spent several years winding down several hundred corporate entities in the UK and EU (relics of old tax structuring plans and a large number of acquisitions) and is now trading through a single UK limited company and non-corporate branches. Other large businesses I’ve been involved with have done similar exercises, particularly (again only anecdotally) where they have been acquired by Private Equity investors who tend to impose simple corporate structures as complex tax-driven structures are less easy to exit from due to the due diligence burden they place on purchasers (and the risk of their tax structuring being incompatible with their purchaser’s). Again, this might explain increasing levels of dormancy.
I accept dormancy as a reality – my estimate leaves over 1.5 million dormant companies
I just find it vey hard to believe we need 2 million of them
Your point re due diligence is an interesting one. Why not get rid of them then?
if you assume that paying tax is synonymous with success, it does seem particularly odd that the number of companies not paying tax has virtually doubled in the last decade. either uk companies are very successful at failure or not paying any tax despite their successes.
You don’t get rid if them as it’s common to not be able to definitively conclude that liquidation might trigger a 179 liability so it’s safer to leave them dormant
I don’t get that
SSE applies since 2011
So why retain?
And anyway, how many companies would this explain?
50 companies per group and, say 500 groups?
That’s 25,000 companies
Then add another 1000 groups with 10 companies
That’s 35,000 companies
Where are all the rest of the dormants?
Even if the total is double this simply does not explain the issue
sse can apply but often it’s hard to figure out definitively whether it would or not, particularly where a group has made many acquisitions and moved things around its group structure, it is therefore safer just to leave them. The cost of maintaining a dormant company is peanuts
I have also seen many instances where a company has been left dormant to protect the brand name, ie the company is called Burger King ltd or something and they don’t want anyone else to use it despite the fact the trade and assets are somewhere else in the group
I agree the number of dormants looks high having said all that!
“Name protection Dormants” will account for orders of magnitude more than 35,000 (though not 1.5m) – I know CoSecs who maintain portfolios of hundreds per brand for large businesses, listed and otherwise. They also keep tabs on new incorporations and liquidations in order to object to passing off, or snap up potentially confusing names as they come free. Plus all the arguments above about cost of removal vs cost of keeping – I’ve heard £25k and upwards quoted for removal of a single “dirty” entity post restructuring; cost of retention practically zero. Which would you choose?
So we have 35,000 kept
And 35,000 to name protect (and given I have read hundreds of group structures I think I’m being fair)
I allow for those, many times over
What are the rest used for?
Presumably a proportion will be law firms “off the shelf” companies ready to be used, no idea who much that might represent of the total though
Oh come on, that’s tiny
10,000? Maybe?
I never suggested it would account for all of them! Did you get out of the wrong side of bed this morning?!?
Is the data available to determine how old these dormants are? Is if something that could be obtained by a freedom of info request do you think ?
Apologies
Companies House always seek to charge for data
Please, please, tell me that HMRC conduct the same type of analysis as you do.
If they do, then they should at least reveal their sample numbers that they use to check up on the missing “non taxpayers”a nd the extent of follow up action.
Let’s see what the extent of their effort is.
My suspicion is that that do very little in this area. Corporation Tax is a semi voluntary payment system connived at by successive Governments. Once again it is the compliant taxpayer that carries the can for others , and that is just not my view, a lot of of us in the trade, as it were, know that is so.
HMRC do not ask for tax returns from about 600,000 companies a year
If a new company does not advise a trade it is assumed dormant
Companies do not gave the 90 day notification period the self employed do
Of the tax returns requested each year several hundred thousand are not submitted. HMRC do almost no and possibly no testing on them
ArouNd 50% of all companies may be unaccountable for CT at any time
PS There is much less need to hold off the shelf companies “in stock” unless one is name protecting, as Incorporation is so very quick nowadays.
Agreed
A few hours at most