Does a purchase and refund count as a &quot;significant transaction&quot; for HMRC and Companies House?
<p>Consider the following hypothetical scenario. Company A incorporates in the UK on day D. Company A makes a purchase to present a product at a trade show and gauge market interest. It attends the show, which does not go well for lack of potential buyers, and subsequently gets a full refund for that purchase. All events, purchase, attendance, and refund, happen within a year of incorporation on day D. Company A has no other activities or transactions.</p>
<p><a href="https://companieshouse.blog.gov.uk/2020/12/16/filing-accounts-for-your-dormant-company/" rel="nofollow noreferrer">Companies House</a> suggests that a company is dormant if it had no &quot;significant transaction&quot;:</p>
<blockquote>
<p>A significant transaction is one that the company should enter into its accounting records. Providing no such transaction has occurred then the company can have dormant status.</p>
</blockquote>
<p>HMRC has a <a href="https://www.gov.uk/dormant-company/dormant-for-corporation-tax" rel="nofollow noreferrer">definition of a dormant company</a>:</p>
<blockquote>
<p>Your company is usually dormant for Corporation Tax if it:</p>
<ul>
<li>has stopped trading and has no other income, for example investments</li>
</ul>
<p>...</p>
<p>Trading includes buying, selling, renting property, advertising, employing someone or getting interest.</p>
</blockquote>
<p>and has <a href="https://www.gov.uk/guidance/corporation-tax-trading-and-non-trading" rel="nofollow noreferrer">some more detailed examples of what counts as trading and not trading</a>:</p>
<blockquote>
<p>Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:</p>
<p>carrying on a business activity such as a trade or professional activity
buying and selling goods with a view to making a profit or surplus
providing services
earning interest
managing investments
receiving any other income
This definition of being active for Corporation Tax purposes is not necessarily the same as that used by HMRC in relation to other tax areas such as VAT, or by other government agencies such as Companies House.</p>
<p>...</p>
<p>Activities or expenditure to do with setting up a business that are not considered trading by HMRC for Corporation Tax purposes include:</p>
<ul>
<li>preliminary activities such as writing a business plan or negotiating contracts</li>
<li>preliminary expenditure such as incurring costs with a view to deciding whether to start a business</li>
</ul>
</blockquote>
<p>Would the purchase and refund enter the accounting records, and so would company A count as not dormant for Companies House?</p>
<p>Would the purchase, trade show attendance, and refund count as a trading activity and not as a preliminary expenditure for HMRC, and so would company A count as not dormant for HMRC?</p>

<p>Yes, they are significant transactions. For the purposes of Companies House, the company is <em>not</em> dormant. My answer does not address the position for HMRC.</p>
<p><a href="https://www.legislation.gov.uk/ukpga/2006/46/section/1169" rel="nofollow noreferrer">Section 1169</a> of the Companies Act 2006 provides (emphasis mine):</p>
<blockquote>
<p>(1) For the purposes of the Companies Acts a company is “dormant”
during any period in which it has no significant accounting
transaction.</p>
<p>(2) <strong>A “significant accounting transaction” means a transaction that
is required by section 386 to be entered in the company's accounting
records</strong>.</p>
<p>(3) In determining whether or when a company is dormant, there shall
be disregarded —</p>
<p>(a) any transaction arising from the taking of shares in the company
by a subscriber to the memorandum as a result of an undertaking of his
in connection with the formation of the company;</p>
<p>(b) any transaction consisting of the payment of—</p>
<p>(i) a fee to the registrar on a change of the company's name,</p>
<p>(ii) a fee to the registrar on the re-registration of the company,</p>
<p>(iii) a penalty under section 453 (penalty for failure to file
accounts), or</p>
<p>(iv) a fee to the registrar for the registration of a confirmation
statement.</p>
</blockquote>
<p>As you can see, the exempted transaction types are very limited and basically just cover those which are the bare minimum to administrate and keep the company in existence.</p>
<p>Turning to <a href="https://www.legislation.gov.uk/ukpga/2006/46/section/386" rel="nofollow noreferrer">section 386</a>, we find (emphasis mine):</p>
<blockquote>
<p>(1) Every company must keep adequate accounting records.</p>
<p>(2) Adequate accounting records means records that are sufficient —</p>
<p>(a) to show and explain the company's transactions,</p>
<p>(b) to disclose with reasonable accuracy, at any time, the financial
position of the company at that time, and</p>
<p>(c) to enable the directors to ensure that any accounts required to be
prepared comply with the requirements of this Act F1....</p>
<p>(3) <strong>Accounting records must, in particular, contain</strong> —</p>
<p>(a) <strong>entries from day to day of all sums of money received and expended
by the company</strong> and the matters in respect of which the receipt and
expenditure takes place, and</p>
<p>(b) a record of the assets and liabilities of the company.</p>
<p>[...]</p>
</blockquote>
<p>The purchase and refund of an item at a trade show involves a &quot;<em>sum of money received [or] expended</em>&quot;. They are therefore significant transactions. They are not covered by any of the exemptions in section 1169(3) and the company is therefore not dormant.</p>

<h2>Yes, those are significant transactions</h2>
<p>The fact that the net effect of all those transactions was zero is irrelevant.</p>
<p>By the definition, the company has “not traded all of its costs and activities were “preliminary”.</p>

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