Inactive companies in Ireland: Tax filing

17 Jul, 2020  Posted By Priyadarshini   Posted in Revenue
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Inactive companies

Under existing laws, firms incorporated in Ireland are responsible to draft and finalise their accounts as per the Companies Act 2014(earlier 1963).  All these firms are supposed to present their financial statements to Revenue in iXBRL. Although not mandatory, Revenue reserves the right to ask any company in the UK to electronically submit their accounts in iXBRL along with Form CT1. However, if a company is inactive, there exists a possibility where Revenue may exempt the mandatory iXBRL submission of financial statements.

When is a Company considered Inactive?

For Corporation Tax (CT) purposes, HMRC considers a number of scenarios to decide if a company or organisation is inactive. An important point to note here is the difference between inactive companies and dormant companies. Inactive companies usually have not started trading and hence do not have a profit and loss statement. When a company has previously traded and then stops it would normally be considered dormant.

Although a company declares it is inactive for CT, it can still engage in activities that are known as ‘pre-trade activities’ or may even incur other associated costs called ‘pre-trade expenditures’.

HMRC has released guidance stating that the following activities are not considered trading for CT purposes:

  • Initial setting up activities including a business plan and/or contract negotiation
  • Pre-business expenditures like consideration costs with an intention to decide on starting business

Hence, Revenue will list a company as inactive if there is no financial transaction during the entire tenure of which accounts is being submitted. It is generally agreed that there has been no transaction during the said period and hence there is no need for a firm to present its accounts in electronic format iXBRL provided the following requirements are met:

  • There should be no gain or outflows in the profit or loss statement of the firm in the submitting period assuming that yearly CRO and payments for audit are not taken into account for this purpose.
  • Also, the firm should have a financial position statement/balance sheet movement which does not exceed EUR500 during the said period. This does not include the initial year after becoming inactive when it is making payments to its suppliers and vendors in the business.
  • Further, it should also not have been mandatory for the firm to submit financial statements in the electronic format iXBRL earlier.

In order to benefit from this provision, the person or agency, helping the company with their compliance has to choose the option given on the iXBRL page of the Form CT1. This option states that inactive companies have been so for some time, and the first two conditions given above are met.

When a company chooses this alternative on FormCT1 then the Local Revenue office need not be approached or informed. Firms which fall under Revenue’ s Large Cases Division but fulfil these conditions may also make use of this exemption and are not required to submit financial statements in iXBRL Format.

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