Following on from our article looking at the audit exemptions which may be available to subsidiary companies, we’ll now look at two further exemptions that can be claimed for dormant subsidiaries. These exemptions relate to preparing individual accounts and filing them with Companies House.
What is a dormant company and which dormant companies can be exempt?
Defining a dormant company is paramount. A company will be considered dormant only if it has not had any significant accounting transactions during an accounting period. The only transactions it is allowed to have had are:
- payment for shares taken by subscribers to the memorandum of association;
- fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing confirmation statements; and
- payment of a civil penalty for late filing of accounts.
To be exempt from preparing and filing the individual company accounts, the dormant subsidiary should not be, at any time during the financial year in question, a quoted company, a company that is an authorised insurance company or a company carrying on insurance market activity, a banking company, an e-money issuer, a MiFID investment firm or a UCITS management company. Neither can it be a special register body as defined in section 117(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (c52) or an employers’ association as defined in section 122 of that Act or Article 4 of the Industrial Relations (Northern Ireland) Order 1992 (SI 1992/807) (NI 5).
If you are happy that you are not any of the above, then read on…
Conditions that need to be satisfied to be exempt
We’ll consider the two exemptions together as the conditions that need to be met for them are the same, both covered in the Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012. Section 394A relates to the preparation of accounts and section 448A to the exemption from filing. The exemption from preparation (section 394A) also covers the requirement to file accounts and so a company that has claimed this exemption does not also need to claim exemption from filing (under section 448A).
A company is exempt from the requirement to prepare individual accounts, and the directors exempt from being required to file a copy of these for a financial year, if the company:
- is itself a subsidiary undertaking;
- has been dormant throughout the whole of that year; and
- has a parent undertaking established under the law of an EEA State.
The company must also comply with all of the following conditions if it is to gain exemptions:
- all shareholders / members of the company must agree to the exemption in respect of the financial year in question;
- the parent undertaking must give a statutory guarantee on all year end liabilities in respect of that year;
- the company must be included in the consolidated accounts drawn up for that year or to an earlier date in that year by the parent undertaking in accordance with the provisions of the Seventh Directive (83/349/EEC) or international accounting standards;
- the parent undertaking must disclose in the notes to the consolidated accounts that the company is exempt from the requirement to prepare individual accounts and / or exempt from the requirement to deliver a copy of the company’s individual accounts to the registrar by virtue of the respective exemption(s); and
- the directors of the company must deliver to Companies House within the period for filing the company’s accounts and reports for that year:
- a written notice that all shareholders / members unanimously agree to exemption in respect of the financial year;
- the statement whereby the parent company guarantees all liabilities held at the year end (Companies House form AA06); and
- a copy of the parent undertaking’s consolidated accounts including a copy of the auditor’s report and the annual report on those accounts.
Sending the Statement of Guarantee (form AA06) to Companies House
- the name of the parent undertaking, if it is incorporated in the UK, its registered number;
- if the parent undertaking is incorporated outside the United Kingdom, the identity of the register on which it is registered and the number with which it is so registered;
- the name and registered number of the subsidiary company in respect of which the guarantee is being given;
- the date of the statement; and
- the financial year to which the guarantee relates.
Impact of exemptions on the Confirmation Statement for dormant subsidiaries