What is a dormant company?
A dormant company is one registered with Companies House but not currently engaged in any business activities or earning income. HMRC considers such companies dormant for Corporation Tax purposes. A company can be dormant from its incorporation date or transition into dormancy after a period of active trading.
There are several reasons why a company may choose to remain dormant:
- Reserving a company name in preparation for future business activities.
- Protecting a trading name from being registered by another entity.
- Restructuring a previously active business.
- Providing the owner with an extended period off due to illness, maternity leave, travel, sabbatical, or other personal reasons.
While a company can remain dormant indefinitely, it must promptly notify HMRC and fulfill various statutory obligations with Companies House. These include filing annual confirmation statements and dormant company accounts, updating company details, and maintaining accurate statutory records available for public inspection.
Can a dormant company trade?
A dormant company is prohibited from engaging in any trading activities or receiving income. This includes:
- Buying and selling goods or services
- Leasing or purchasing property
- Employing staff
- Paying salaries to directors
- Managing investments or receiving dividends
- Issuing dividends to shareholders
- Earning interest or paying bank charges
- Settling legal or accountancy fees directly from the business bank account
Engaging in any of these activities will cause a dormant company to lose its dormant status and necessitate the preparation of full statutory accounts.
How can I make my company dormant?
To register a new company as dormant or change an existing company’s trading status from active to dormant, you must contact HMRC’s Corporation Tax office in writing. Specify the date from which the company will be considered dormant.
You can find HMRC’s contact details on any official correspondence sent to your registered office address or find them online.
Within approximately 15 days, you should receive confirmation at your registered office address acknowledging the acceptance of your company’s dormant status.
If your company was previously trading, HMRC will issue a ‘Notice to deliver a Company Tax Return’ for the Corporation Tax accounting period before the company became dormant. This return must be completed and submitted to HMRC online. Any profits earned during that period will be subject to Corporation Tax. Additionally, you should close your payroll and cancel your VAT registration, if applicable.
Before declaring your company dormant, ensure all outstanding obligations are settled, including directors’ salaries, employees’ wages, shareholders’ dividends, service provider direct debits, and supplier accounts. Arrange for any outstanding payments from clients to be collected.
Once these steps are fulfilled, you won’t need to contact HMRC again until your company resumes trading.
Notifying Companies House
You are not required to notify Companies House when your company becomes dormant. However, you must still file a confirmation statement (previously known as an annual return) and dormant accounts each year.
Filing annual accounts is how Companies House is informed of a company’s dormant status.
Dormant company bank accounts
If your company is dormant, it is recommended that you do not open a business bank account. If your company has been trading, it is advisable to close any existing business bank accounts to avoid bank charges or unexpected payments that could cause you to lose your dormant status.
For any incidental payments required, it’s best to use a personal bank account instead.
Can a company make or receive payments when dormant?
A dormant company can only conduct the following transactions through a business bank account:
- Payments for shares from initial shareholders
- Fees to Companies House for filing a confirmation statement and changing the company name
- Late filing penalties to HMRC
All other payments made or received are considered ‘significant accounting transactions,’ which would compromise the company’s dormant status and necessitate the submission of full statutory accounts.
Dormant company reporting and filing requirements for Companies House
Dormant companies must prepare dormant accounts and confirmation statements annually for submission to Companies House.Dormant accounts include a balance sheet and relevant notes, which can be submitted via post or online using form AA02. The deadline for filing these accounts is 9 months after the financial year-end, known as the ‘accounting reference date’.
For a company’s first accounts covering more than 12 months, the filing deadline extends to 21 months from the date of incorporation. Companies House will notify you of these deadlines in due course, though it’s advisable to maintain your own reminder system.
The annual confirmation statement confirms crucial company details as of a specific date, including;
- company name
- registered office address
- SAIL address (if applicable)
- directors’ details
- company secretary details (if one is appointed)
- shareholders’ details
- location of statutory company records
- information about issued shares
- nature of business activities (SIC codes)
- information about people with significant control (PSCs)
- registered email address
The initial confirmation statement of a company must be submitted 12 months after its incorporation date. Subsequent statements are due annually, 12 months after the confirmation date of the last statement filed with Companies House.
There is no restriction on the number or frequency of statements a company can file each year. The primary objective is to verify essential details, ensuring the public register remains accurate and current.
Dormant companies must also maintain accurate statutory records, which must be accessible for public inspection at the registered office or SAIL address.
Any changes to the company’s registered details must be promptly reported to Companies House for updating the public record.
Dormant company requirements for HMRC
Dormant companies are exempt from filing tax returns with HMRC from their date of incorporation until they become active. However, if a dormant company traded at any point during an accounting period before becoming dormant, it must submit a Company Tax Return.
Once you inform HMRC that your business has ceased trading, you will receive a ‘Notice to deliver a Company Tax Return’. This return covers the trading period and calculates any Corporation Tax owed by the company.
Apart from this tax return, dormant companies have no other obligations to HMRC until they resume trading or are dissolved.
Does my company have to pay tax when dormant?
Dormant companies are not liable to pay taxes until they resume trading. However, if a company had previously been actively trading, it must settle any outstanding tax liabilities accrued during that period with HMRC.
How do I make a dormant company active?
If and when you decide to resume business activities with your dormant company, it is crucial to notify HMRC within 3 months of engaging in any business activity or receiving income.
For companies that have never traded before, you must register online for Corporation Tax. This process involves creating a Government Gateway account and submitting the following statutory details:
- company name
- company number
- date your company became active – this will be the start of your company’s accounting period for Corporation Tax
- address where principal business activities are carried out
- Standard Industrial Classification (SIC) code – the nature of your company’s main business activities
- Accounting reference date (ARD) – the date up to which your company accounts will be prepared
HMRC will update their records with this information and establish your company’s accounting period for Corporation Tax. This period starts from the date your company commences trading and continues until the accounting reference date (ARD) of your annual accounts.
You will receive correspondence at your registered office detailing deadlines for Corporation Tax payments and Company Tax Return filings. It is essential to maintain accurate business and accounting records to ensure timely and accurate completion of these tax returns and assessment of tax liabilities.
You may want to consider seeing an accountant or tax advisor to assist with these tasks.
If your company employs staff, you must register as an employer and set up PAYE. Additionally, if your company’s expected annual turnover exceeds £90,000 (the VAT registration threshold from 1 April 2024), you may need to register for VAT.
There is no immediate requirement to inform Companies House when your company resumes trading. Notification of its active trading status occurs when you file the next set of annual accounts.
Can a dormant company be a shareholder or guarantor of another limited company?
A dormant company can be established as either limited by shares or limited by guarantee solely to act as a shareholder guarantor for another company. In this role, the dormant company commits to contributing a specified sum towards the debts of the other company in case of insolvency.
To maintain its dormant status, a corporate shareholder or guarantor must not engage in ‘significant accounting transactions’ at any time.
If you establish a dormant company to serve solely as a shareholder or guarantor, there should be no need for any transactions to pass through its accounts. For instance:
- A dormant company registered as limited by shares can set the share value to match the guaranteed contribution towards the debts of the other company.
- Similarly, a dormant company registered as limited by guarantee can establish the guaranteed sum to match the agreed contribution towards the debts.
The issuance of shares or guarantees does not constitute a significant accounting transaction because these fixed capital sums are determined at the company’s incorporation.
However, if the dormant company receives any payment for its role as a corporate shareholder guarantor, or if its directors or members receive any income, the company will lose its dormant status.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io!
Related Articles
Was this helpful?
0 / 0