Despite what you may think, a dormant company isn’t simply a closed company. There are rules to owning a dormant company, which you must meet if you wish your company to be classified as dormant.

So, what is a dormant company, and what reasons are there for becoming dormant? We delve into this and other frequently asked questions below.
 

What is a dormant company?

Why make a company dormant?

Who do I need to tell if my company is dormant?

Do dormant companies need to submit accounts?

Can dormant companies be VAT registered?

Making a company dormant as an employer

How long can a company remain dormant?

How do I make my dormant company active?

There are two definitions of ‘dormant’ depending on whether you’re looking at HMRC for Corporation Tax or dealing with Companies House.

A dormant company for Corporation Tax

This is a company which is registered and:

• Is no longer trading and has no other income (such as investments)
• Has not yet begun trading
• Is an ‘unincorporated association’ or club owing less than £100 Corporation Tax
• Is a flat management company

A dormant company for Companies House

This is a company registered with Companies House, but it hasn’t had any ‘significant accounting transactions’ during its financial year. A ‘significant accounting transaction’ may be defined by any transaction which should be entered in a company’s accounting records, although these are limited to:

• Payment for shares
• Fees paid to Companies House for a change of company name
• Re-registration of a company
• Filing annual returns
• Payment of penalties imposed by Companies House

There a many reasons a company may become dormant either for Corporation Tax or for Companies House, and it’s probably more common than you might realise. For instance, you might register a company with no intention of it ever trading in order to protect a brand name or trademark, as part of a restructure, or to own assets or intellectual property.

If the company has been trading then making it dormant rather than closing it down completely gives you more flexibility to resume trading again in the future. It’s a bit different to a company which is simply not trading.

One of the main benefits is that whichever description a dormant company falls under, you will have fewer filing responsibilities, reducing the statutory burden on your company.

It’s your responsibility to make sure the relevant organisations are aware of your company’s trading status, so there are a few steps you need to take if your company is dormant.

Telling HMRC your company is dormant

Although dormant companies aren’t liable for Corporation Tax, you still need to tell HMRC that your company is dormant (otherwise they’ll expect you to continue submitting Company Tax Returns, and issue a penalty when you don’t).

As ever with anything tax related, the sooner you let HMRC know about the change in trading status, the better. If you work with an accountant they’ll be able to inform HMRC on your behalf, or you can do it online. You’ll need to confirm:

• The name of the company
• The company’s Unique Taxpayer Reference (UTR) number
• The date the company stopped trading (if it ever began)

It can sometimes work the other way, and HMRC will write to you if they think that your company or association should be treated as dormant, and that you don’t have to pay Corporation Tax or file Company Tax Returns.

Inform Companies House about a dormant company

Unlike HMRC, you won’t need to notify Companies House if your company becomes dormant until it’s time to submit a confirmation statement and annual accounts.

Yes, whether your company is dormant from the day it starts, or you make it dormant at a later date, you’ll need to submit a confirmation statement and Annual Accounts to Companies House.

The company will need to submit full accounts covering the time it was active, but you can submit dormant company accounts (which are simpler) if the company is dormant for a full accounting period.

No, so if you decide to make your VAT-registered company dormant then you’ll need to deregister for VAT within 30 days of its status changing.

If your company employs anyone then you’ll need to pay any wages due before making it dormant and closing your PAYE scheme.

A limited company can remain dormant indefinitely, which is useful if you’ve registered it purely to prevent another company using the name or to own assets. You’ll still be required to file some paperwork though, and there are costs involved in that. The company will need to decide how any expenses will be paid for, and who is responsible for filing the necessary documents.

You’ll need to let HMRC know that you’re registering (or re-registering) for Corporation Tax within three months of becoming active if your dormant company starts trading again or for the first time. Dormant companies don’t need to notify Companies House that they’re trading until they submit their annual accounts.

You may also need to register for VAT if you expect your turnover to be over the VAT threshold.

Learn more about our online accounting services. Call 020 3355 4047 to chat to the team, or get an instant online quote.

A dormant company for Corporation Tax is one which is:

• No longer trading and has no other income (such as investments).
• A new limited company that has not yet begun trading.
• An ‘unincorporated association’ or club owing less than £100 Corporation Tax.
• A flat management company.

A dormant company for Companies House is a company which is registered with Companies House, but which has had ‘no significant accounting transactions’ during its financial year. A ‘significant accounting transaction’ may be defined by any transaction which should be entered in a company’s accounting records.

For a company to be dormant for Companies House, its transactions must be limited to:

• Payment for shares.
• Fees paid to Companies House for a change of company name.
• Re-registration of a company.
• Filing annual returns.
• Payment of penalties imposed by Companies House.

There are certain exceptions to these such as some financial companies who must file their full accounts regardless of their company status.

Why become dormant?

There a many reasons a company may become dormant either for Corporation Tax or for Companies House. This might include:

• Protecting a brand name or trademark.
• Restructuring an existing business.
• To hold assets or intellectual property.

One of the main benefits is that whichever description a dormant company falls under, you will have fewer filing responsibilities, reducing the statutory burden on your company.

A dormant company is also exempt from paying Corporation Tax, as long as it’s dormant according to the description above. However, you must pay any outstanding tax liabilities before you can become dormant.

Filing requirements

A company might always be dormant from the moment it’s set up, or it may become dormant later. Either way, it is important to continue managing it in the correct way.

Each dormant company must still meet certain filing requirements.

As a dormant company you will still need to file annual accounts and a confirmation statement to Companies House. You must do this whether your company is dormant for Corporation Tax or for Companies House.

Making an active company dormant

To make an active company dormant, you must inform HMRC that your company is dormant as soon as possible. To inform HMRC, you can send a letter or contact them by phone. You must do so within three months of your company becoming dormant. You won’t need to inform Companies House that your company is dormant until you need to file your annual accounts.

If your company had employees, you will be required to pay any remaining wages and close your existing PAYE scheme.

You must also deregister for VAT within 30 days of becoming dormant. If the company is only to be dormant temporarily, and you plan to begin trading again in the future, continue sending empty VAT returns while your company is dormant.

As dormant companies cannot spend or receive any money without becoming active for Corporation Tax, it is best to close business bank accounts to ensure no income is received.

Making a dormant company active

If you have a dormant company and wish to become active, you must inform HMRC within three months of the company becoming active. For companies which have been active in the past, this is as simple as signing into your HMRC account and changing the status of the company to ‘active’ for Corporation Tax.

If the company has never traded you will need to register for Corporation Tax.

You may also need to register for VAT if you expect your turnover to be over the VAT threshold.

You do not need to inform Companies House when your company becomes active again, as this will be clear when you submit your annual accounts.

Do you need more advice on managing your dormant company? Get in touch with the our friendly team on 020 3355 4047 to see how TAP can help

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About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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