Starting a new business? Get 40% off our accountancy services for 3 months! 😎

x

Some limited companies are registered but then never trade, or they might do so only to stop trading after a period of time. These companies are sometimes referred to as dormant or non-trading, but although these terms appear to mean the same thing there are actually differences between the two.

Just to make things even more complicated, the definition of what is a dormant company depends on whether it’s for Companies House or for Corporation Tax purposes. Confused yet? We’ll guide you through the definitions, what they mean for you, and what you need to do.
 

What is a dormant company?

What is a dormant company according to Companies House?

Dormant for Corporation Tax Purposes

What’s a non-trading or non-active company?

Can a dormant company trade?

Being a dormant company means something different in the world of HMRC and Corporation Tax compared to the definition used by Companies House, so we’ll start there.

Infographic showing the different types of dormant company

According to Companies House, a company is dormant if there haven’t been any significant company transactions in a financial year. It’s worth noting that any filing fees or penalties you pay to Companies House don’t count as significant transactions.

If these are the company’s only transactions, and there aren’t any other active transactions going into or coming out of the business, then Companies House considers it dormant.
 

Limited company accountancy services

From only £54.50 per month

Learn more

When talking about Corporation Tax, the definition of a dormant company is (you’ve guessed it) linked to your company’s Corporation Tax liability. If your company isn’t actively trading, or isn’t liable for Corporation Tax, then it’s dormant. For instance, a company could be considered dormant if it’s:

HMRC will also consider clubs and organisations dormant for Corporation Tax purposes if they are active and owe a maximum of £100 in Corporation Tax, or if they run the club or organisation solely for the benefit of its members.

Learn more in our Guide to Dormant Companies.

From HMRC’s perspective, if your company hasn’t started trading yet, then it isn’t active for Corporation Tax and Company Tax Return purposes. That doesn’t mean that you aren’t able to set up your company and get the ball rolling, just that your company is considered inactive if trading hasn’t started.

As long as your company doesn’t engage in any profit-making activities, you can carry out early-stage business activities and still be considered not active. These early-stage activities might include:

If your company was trading but is no longer carrying out any profit-driven business activity, then it’s considered dormant.

 
You might also decide to register a company name just to have it for the future, or to protect the name. The company will be inactive until you decide to do something with it.

As a dormant company you can’t actively trade or carry out activities to drive profit – which also translates as undertaking any significant transactions. The purpose of registering a company as dormant is to close down the majority of any business and financial activities. If you do decide to start trading again, you’ll need let HMRC know.

Get in touch to find out more about our online accounting services. Call 020 3355 4047, or get an instant online quote.

About The Author

Beth-Anne Bruce

I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.

More posts by this author
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Read more posts...

What is a Non-Established Taxable Person for VAT?

There are special VAT rules in place for online sellers who are classed as non-established taxable persons (NETPs), and use an online…

Read More

The Accountancy Partnership – Our Positive Reviews

Here at The Accountancy Partnership, we’re proud of our customer reviews The reviews we receive from our customers show how hard we…

Read More

What Type of Legal Structure Should I Choose When I Start a Business?

The structure that you choose when you start a business affects how the business operates, the amount of tax you pay, how…

Read More
Back to Blog...

Confirm Transactions

The number of monthly transactions you have entered based on your turnover seem high. A transaction is one bookkeeping entry such as a sale, purchase, payment or receipt. Are you sure this is correct?

Yes, submit my quote
No, let me change it

Please contact our sales team if you’re unsure

VAT Returns

It is unlikely you will need this service, unless you are voluntarily registered for VAT.

Are you sure this is correct?

Yes, the business is VAT registered
No, let me change it

Call us on 020 3355 4047 if you’re not sure.

Bookkeeping

You will receive our bookkeeping software Pandle for free, as part of your package.

You can use this to complete your own bookkeeping, or we can provide a quote to complete your bookkeeping for you.

Please select and option below:

I will do my own bookkeeping
I want you to do my bookkeeping

Call us on 020 3355 4047 if you’re not sure.