Tuesday, December 5, 2023

Dormant companies place £600m drain on business purse, claims report

UK businesses are wasting more than £600m each year on keeping unused ‘dormant’ companies open, says audit, tax and advisory firm Mazars.

There are currently 681,000 companies in the UK currently registered as ‘dormant’ with Companies House – meaning it is not currently trading or generating any income. Keeping a dormant company open costs at least £900 per year in audit, accounting and compliance costs. This figure would be even higher were the company required to file tax returns.

Listed companies alone have 18,700 dormant UK subsidiaries, costing around £17m in fees to keep open each year. One major UK bank has 256 dormant subsidiary companies.

Simon Chandler, Partner and Head of Restructuring Services at Mazars, explains that removing these unused companies can cost little more than keeping them open for a single year. This one-time cost can save many thousands of pounds in future audit, accounting and compliance costs.

Mr Chandler adds that many corporates would benefit from undertaking ‘corporate simplification’ projects to close down these dormant companies and avoid wasting money. He says that for companies with a large number of dormant subsidiaries, the cost of closing them down in bulk can in fact be lower than the cost of keeping them open for another year.

Closing down dormant companies can also be a useful way to control risks. There have been cases where historic legal claims have arisen against a dormant company, triggering even more avoidable costs for its corporate owner.

Mr Chandler says: “There are businesses that are wasting hundreds of thousands of pounds each year on dormant companies.

“The value they get from these companies is almost certainly zero – there is only a relatively small number of cases where a dormant company genuinely needs to remain open.”

“Companies generally put off the exercise of removing companies no longer needed within their group to deal with more pressing matters but cleaning up unused companies should be a standard part of corporate ‘housekeeping’ for businesses. It’s a quick and low-impact way to save costs and reduce risk.”

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