What is a dormant company?
A dormant company is a limited company that is not currently trading. If you set up a business and register it as a limited company, you do not have to start trading straight away if the time is not right for you. You must notify HMRC as soon as possible and Companies House when your annual accounts are due, to tell them that your company is inactive and not trading. By doing this, you will not leave yourself open to paying corporation tax. This can be done via post, email or telephone.
When is a company classified as ‘dormant’?
If you want to register your company as dormant, it must have ‘no significant transactions’ in its first financial year and therefore can be viewed as inactive for Corporation Tax purposes. To attain this dormant status, there must be no activity of the following:
- Buying and selling services and goods
- Receiving dividend payments
- Issuing dividends to shareholders
- Earning interest from bank accounts
- Paying banking fees or charges
- Operating payroll
- Managing any investments
- Paying salaries to directors
- Paying company formation costs and accounting fees via business bank account
- Renting or purchasing property
Once your company is registered as dormant with HMRC and Companies House, none of the above activities must take place. Otherwise, you will lose the dormant status and you will then be considered an active company for Corporation Tax purposes. However, certain activities are disregarded and can be carried out by a dormant company including:
- The payment of shares by subscribers
- Companies House fees, for filing an annual confirmation statement, changing the company name or re-registration of that company
- Late filing penalties to Companies House
Why would a limited company be dormant?
There are many reasons for registering a limited company as dormant, including:
- Protecting the brand name or trademark of a company to prevent others from using it
- Reserving a company name for later use
- Restructuring of existing business
- A place to hold intellectual property or assets
- A temporary measure for businesses dealing with illness or death of a business owner
Businesses can be held as dormant for an unlimited period, but there are costs to be considered in maintaining a company on the official register. There are also filing and reporting obligations to fulfil for HMRC and Companies House.
Conditions for forming dormant companies
Companies House still require accounts for dormant companies each year, just as they are required for an active company. These must include a balance sheet with any relevant notes and must be delivered no later than 9 months after the accounting reference date (ARD). The ARD is the end of the firm’s financial year, usually the last day of the month following your company's formation.
Annual confirmation statement
Each year, all companies, dormant or active, are required by law to prepare an annual confirmation statement. This document is to tell Companies House about the current state of your company and confirms the current information being held and displayed on public record. The information includes:
- The name and registered number of the business
- The registered office address
- The location of your statutory records
- The company directors’ details
- The company secretary details (if applicable)
- Your PSC register (information held on the register of ‘people with significant control’)
- The details of shareholders or guarantors
- Information about share capital
- The company's Standard Industrial Classification (SIC) code(s)
- Your Single Alternative Inspection Location (SAIL address)
- The due date for filing your confirmation statement
Filing a confirmation statement for a dormant company is essential, even for a company that will never actually trade. Any changes to the information in the confirmation statement must be highlighted to Companies House as quickly as possible and updated on the following years' statement.
How can I change my dormant company to active?
If you make your dormant company active, you have to inform HMRC within 3 months. For companies that have traded before, sign in to your HMRC account and register the company as ‘active’ for Corporation Tax. If the company has never traded, you will have to register for Corporation Tax online. You will need your company’s Unique Taxpayer Reference, in both situations.
How can I make my active company dormant?
You may find making your company dormant better than closing it down after it has ceased trading. To do this, you need to contact the Corporation Tax Office in writing to inform them that it is now dormant. After completing the necessary paperwork sent to you, your company will be officially considered dormant.
If the company was VAT registered, you must tell HMRC that you have ceased to make VAT taxable goods or supplies and that you wish to cancel this registration. You should do this within 30 days of your company becoming dormant, this can be carried out online, or by post using the VAT 7 form. HMRC will then send a confirmation in writing and you will be required to file a final VAT Return and pay any VAT due.
What are the banking requirements for a dormant company?
Active companies require business bank accounts, however, dormant companies do not. If you make your company dormant, it is best to close any bank accounts relating to the company to ensure no activity can occur, taking your company out of dormant status.
If you decide to start trading again, you can easily open a new business bank account for your business. Until then, any costs associated with your dormant company can be paid through your personal bank account.