Some registered companies don’t actually trade, or stop trading after a period of time. They’re sometimes referred to as dormant or non-trading, which appear to mean the same thing. There are actually differences between the two, which you might find useful to familiarise yourself with.
Just to make things more complicated, dormant companies don’t have a single definition. Being a dormant company means something slightly different, depending 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.
So, what is a dormant company?
We know that a dormant company means something different in the world of Corporation Tax to that of Companies House, so we’ll start there.
Dormant according to Companies House
If there haven’t been any significant company transactions in a financial year, then Companies House defines your company as dormant. Any filing fees or penalties which are due to Companies House don’t count as significant transactions.
If these are the company’s only transactions then Companies House considers it dormant. That means there can’t be any other active transactions going into or coming out of the business.
Dormant for Corporation Tax Purposes
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.
Here are a few examples of where a company would be considered dormant:
A newly established company that hasn’t started trading yet.
The company is no longer trading.
A company formed to own an asset (such as land), and will therefore never trade.
HMRC will also consider clubs and organisations dormant for Corporation Tax purposes if they are active and also:
Have a Corporation Tax liability of £100 or less.
Run the club or organisation solely for the benefit of the members.
You can find out more about dormant companies in our detailed explainer guide.
What do I need to do if my company is dormant?
There are a few steps you need to take if your company is dormant.
It’s the company director or owner’s responsibility to make sure that the relevant organisations are aware of your company’s trading status. Although dormant companies aren’t liable for Corporation Tax, you still need to tell HMRC that your company is dormant.
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.
Inform Companies House
If your company was previously trading and is now considered dormant, then whether your company is dormant for either Corporation Tax or according to Companies House you’ll need to file:
A confirmation statement (this used to be called an annual return).
Annual Accounts with Companies House.
There are also a few other steps you will need to take depending on whether your company used to have employees or was registered for VAT:
For companies that used to have employees but now want to register as dormant, you’ll need to ensure all wages are paid. You’ll also need to close your PAYE scheme.
If you’re registered for VAT and don’t plan on trading again in the near future, you should de-register for VAT.
If you think you may want to become an active company again, we recommend that you still complete VAT returns, submitting them as ‘nil’, making it much simpler for you to start trading again if you decide to.
In some instances, you may also receive a letter from HMRC. This will be to tell you that they believe your company is dormant, and that you won’t need to pay Corporation Tax or file Company Tax returns. In this case, you won’t need to take any further action with HMRC unless instructed. You may still need to contact Companies House, though.
Is my company liable for tax if it’s listed as dormant?
As long as you’ve taken all of the appropriate actions to register your company as dormant, it won’t be liable for any tax. Just make sure that you’re up-to-date with outstanding tax, VAT and wage bills before you register the company as dormant.
What’s a non-trading or non-active company?
From HMRC’s perspective, if your company hasn’t started trading yet, then it isn’t active for Corporation Tax purposes. That doesn’t mean that you aren’t able to set up your company and get the ball rolling. It just means 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 include:
Writing business plans and negotiating contracts.
Identifying the viability of the business. This helps you better understand if you want to carry on with your venture or not.
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.
Can a dormant company trade?
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.
Why would I want to make my company dormant?
If being dormant means the company only really exists in name only, you might think why not just close the business altogether? But there are a number of reasons why you might consider making your company dormant instead of closing it down. We’ll go through some below.
Taking a break
You might be thinking of closing the company, without being completely confident that it’s the right thing to do. Making the company dormant is an efficient way of taking time away to reassess. Closing a company permanently can be time-consuming, costly, and an administrative burden.
It might be that you need to consider other priorities, your strategy, or your product or services, for example. Making your company dormant gives you the space you need. You might decide to start trading again in the future, or realise that you’re ready to move on and close your company. Closing your company is final, whereas making your company dormant is a temporary measure.
Try something new
You might be keen to get involved in another venture, but aren’t quite ready to commit to making the leap from old to new. By registering your company as dormant, you’re buying yourself valuable time to step back and invest your energy or money in another area. All with the comfort of knowing if you need to re-start trading, you can do so more easily.
Returning to permanent employment
Had an offer you can’t refuse? Joining the employment workforce can be tempting, but it’s also a leap of faith, and different to what you’re used to. By making your company dormant, you’re mitigating the risk of closing your company completely by leaving the door open for your return should you want or need to.
How do I make my dormant company active again?
One of the reasons for making a company dormant is to give the owners flexibility over re-starting their business. There are four steps to take to make your company active again:
Register for Corporation Tax again.
Send accounts to Companies House – this must be within 9 months of your company’s year-end.
Pay any Corporation Tax that’s owed – this has to be within 9 months and one day of your company’s year-end.
Send a Company Tax Return within 12 months of your company’s year-end.
Not sure on the right course of action for your business? If you need guidance on the correct business status for your company or organisation, that’s what we’re here for.