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?

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)
• A new limited company that 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

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 when the company was first incorporated
• 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

Why make a company dormant?

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.

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