A dormant company is one that is currently not trading, which means it is inactive for Corporation Tax purposes. You do not have to tell Companies House that your company is dormant until it’s time to file your annual accounts. However, you must tell HMRC as soon as possible. You can do this by contacting the Corporation Tax department by phone, email or in writing.
What is a dormant limited company?
A dormant company is one which has no ‘significant accounting transactions’ during its financial year. Such companies are considered inactive for Corporation Tax purposes because they are not involved in any kind of trading activity, including:
- Buying and selling goods and services.
- Renting or purchasing property.
- Operating payroll.
- Paying directors’ salaries.
- Issuing shareholders’ dividends.
- Managing investments.
- Receiving dividend payments.
- Earning interest.
- Paying bank charges and fees.
- Paying company formation costs and accountancy fees through the business bank account.
If a dormant company carries on any type of trading activity, it will immediately forfeit its dormant trading status and be considered ‘active’ for Corporation Tax purposes. The following transactions are disregarded as ‘significant accounting transactions’ and can be carried out by a dormant company:
- Payment of shares by subscribers (the first shareholders who join the company at the time of incorporation).
- Fees paid to Companies House for filing an annual confirmation statement (previously called an ‘annual return’), changing the company name or re-registration of the company.
- Late filing penalties paid to Companies House.
Why would a limited company be dormant?
A limited company can be dormant for many reasons, such as:
- Protecting a brand name or trademark.
- Protecting a company name to prevent it from being registered by another business.
- Reserving a company name in preparation for later use.
- Restructuring an existing business.
- Holding assets or intellectual property.
- A temporary measure upon the death or illness of the owner of the business.
There is no limit to the length of time a business can remain dormant, but there are certain expenses associated with maintaining a company on the official register. Furthermore, dormant firms still have certain filing and/or reporting obligations to fulfil for Companies House and HMRC.
Register a dormant company to protect a company name
The only way to protect a company name is to form a limited company. If you don’t do this, someone else could register their own company using your preferred name. You do not have to trade through your company. It can be registered as dormant for its entire existence for the sole purpose of protecting a brand name or trademark.
Dormant company requirements for Companies House
Directors must prepare dormant accounts for Companies House every year. You will have to do this even if the business remains dormant from one financial year to the next. The accounts should include a balance sheet and any relevant notes. They must be delivered no later than 9 months after the accounting reference date (ARD). The ARD signifies the end of the firm’s financial year. It is usually the anniversary of the last day of the month of company formation.
Annual confirmation statement
All companies, whether active or dormant, must prepare an annual confirmation statement at least once every 12 months. The purpose of a confirmation statement is to provide a snapshot of important company details at a certain date (the ‘confirmation date’). Companies House uses this information to confirm the details held and displayed on public record. The statement is used to verify the following data:
- Name and registered number of the business.
- Registered office address.
- Single Alternative Inspection Location (SAIL address).
- Location of statutory records.
- Directors’ details.
- Secretary details.
- Details of shareholders or guarantors.
- Standard Industrial Classification (SIC) code(s).
- Information about share capital.
- Information held on the register of people with significant control (‘PSC register).
The due date for filing a confirmation statement is the anniversary of incorporation, or the anniversary of the ‘made-up’ date of the last statement. You have 14 days after this date to deliver the statement to Companies House.
You must submit a statement even if your details remain unchanged from one year to the next. If any company data does change, you must notify Companies House as soon as possible and then confirm the changes on the next statement.
You can report changes and deliver confirmation statements online via WebFiling or through Rapid Formations’ free Admin Portal.
Changing a company’s status from dormant to active
You must inform HMRC within 3 months if your dormant company becomes active. If your company has traded in the past, you can simply sign into your HMRC account and register as ‘active’ for Corporation Tax. If your firm has never traded, you will have to register for Corporation Tax online. In both situations, you will need your company’s Unique Taxpayer Reference.
Companies that are trading for the first time have to provide HMRC with the following information:
- Full registered name.
- Registration number (CRN).
- Start date of business activities.
- Address where principal business activities are carried out.
- Nature of business activities.
- Accounting reference date. This is the date you will prepare the annual accounts up to.
You must keep and maintain accurate business and accounting records to complete your tax returns and work out your tax liabilities. If you need help with your accounting and filing responsibilities, you should consult an accountant or professional tax advisor.
If you expect your annual turnover to exceed £85,000 (2020-21 VAT registration threshold), you will also need to register for VAT. If you employ anyone, your company must be registered with HRMC as an employer and signed up for PAYE.
There is no need to contact Companies House when your business becomes active. This change of trading status will be reported when you deliver your annual accounts.
Do I need a bank account for my dormant company?
Dormant companies cannot spend or receive any money, otherwise they become active for Corporation Tax purposes. The best way to maintain a dormant trading status is to close or cease opening any business accounts in your registered name.
The smallest entry or transaction, including earning interest or paying bank charges and fees, will forfeit your dormant trading status. You would then have to prepare full annual accounts for Companies House.
If you have an active business bank account, you should ensure all bills and other liabilities (including bank charges and fees) are settled before you close it. Cancel all direct debits and standing orders.
Contact all suppliers and service providers to ensure no further payments will be taken from your account. When everything is in order, call or visit your local branch to formally close the account.
If you decide to start trading again in the future, you can easily open a new business account. In the meantime, any incidental costs (incorporation costs, accountancy fees, etc) can simply be paid through your personal account.
Does my dormant company have to pay tax?
Your dormant company will not have any tax liabilities if it is inactive for the entirety of its financial year, nor will you be required to prepare accounts or tax returns for HMRC for that period.
If your company stops or starts trading at any time within a financial year, you will be liable to pay tax on any taxable income generated when the business was active. You will also have to prepare accounts and tax returns for that time.
Making an active company dormant
If your company was previously trading but is now dormant, you should contact the Corporation Tax Office in writing as soon as possible. A ‘Notice to deliver a Company Tax Return’ will be delivered to your registered office and you will be required to file this return with HMRC and pay Corporation Tax on any profits made prior to your company becoming dormant.
From this point on, your company will be considered dormant for Corporation Tax purposes and you should not have to contact HMRC until your company ceases to be dormant.
If your previously active company was also registered for VAT, you must tell HMRC that you have ceased making VAT-taxable supplies and you wish to cancel this registration. You should do so within 30 calendar days of your company becoming dormant and this can be carried out online, or by post using form VAT 7.
Provided HMRC is satisfied with your reason for cancelling, you will receive a letter confirming the date of cancellation and you will be required to file a final VAT Return and pay any VAT due.