Dormant Companies Actively Waste Money, PwC Says

Lucas Gilmore, “Big 4″ observer
November 23, 2010 /

Pricewaterhouse Coopers (PwC) has measured the cost of maintaining dormant companies in Scotland to hit £156m annually, pointing to complex group structures as the cause.

Costs in administration and unnecessary compliance have rendered nearly 20 percent of businesses in Scotland inactive and financially burdensome, PwC finds. These dormant companies have no important functions, according to PwC, and the problem could be addressed if the framework of UK accounting is moved to the International Financial Reporting Standards (IFRS) as proposed by the Accounting Standards Board (ASB). PwC says this would somehow simplify the structures of different groups and would eliminate dormant companies.

Rationalisation of Scottish group structures to rid Scotland of dormant companies may increase the savings up to more than £300m, PwC calculates.

The imminent changes to the UK GAAP have affected various areas in about 100,000 registered Scottish companies, including but not limited to their tax planning, dividends payment capabilities, requirements in their systems and data, and the structure of their companies. PwC said the proposal of the ASB would increase compliance costs.

Sharron Moran, Senior Manager, and IFRS specialist at PwC in Scotland, said dormant companies could be eliminated through “bolt-on acquisitions or tax-induced complexity.”

PwC calculated that at least £240k could be saved in just one year if, for instance, 200 businesses would reduce their entities by 20 percent and about £100k annually for a group of 80 companies. For corporations that must file a tax return, these figures do not cover the additional time and costs spent tagging financial statements for Extensible Business Reporting Language (XBRL). Active and dormant companies are required of XBRL for tax returns due to HMRC after April 1, 2011.

The ASB has extended the period for companies to think of the implications of adopting an IFRS-based framework. But PwC says dormant companies that would choose to adopt either the IFRS or FRSME earlier than 2013 might enjoy substantial tax benefits.


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