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A dormant company is a limited company that is not trading (i.e. not doing business) and not receiving any other forms of income. In such instances, the company is deemed ‘inactive’ for Corporation Tax purposes.
If your company is dormant, you do not have to tell Companies House 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 that 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, which includes:
- 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 of these activities, it immediately forfeits its dormant trading status and becomes ‘active’ for Corporation Tax. However, 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 annual confirmation statements (previously called ‘annual returns’), changing the company name, or re-registering the company.
- Late filing penalties paid to Companies House
Why would a limited company be dormant?
There are many reasons why a limited company would be dormant, 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
- When restructuring an existing business
- Holding assets or intellectual property
- A temporary measure upon the death or illness of the owner of the business
Companies can remain dormant for any length of time, but there are certain expenses associated with maintaining a limited company on the official register. Furthermore, dormant companies 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, your preferred name could be registered by another business. If you choose to register a company simply to protect a name, there is no need to actually trade through the company at any time. It can remain dormant indefinitely, 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. However, dormant accounts are more simplified, so you will only need to include a balance sheet and any relevant notes pertaining to the information included in the account.
Your annual accounts must be delivered to Companies House no later than 9 months after your accounting reference date (ARD). The ARD signifies the end of your company’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 this document is to provide a snapshot of important company data at a certain date (the ‘confirmation date’). Companies House uses this information to ensure that the registered details held on public record are accurate and up to date.
The information that you will need to confirm on the statement includes:
- Name and registered number of the company
- 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 your confirmation statement to Companies House.
You must submit a statement even if your registered information remains unchanged from one year to the next. If any company details do change, you are obligated to tell Companies House as soon as possible and then confirm the changes on the next confirmation statement.
You can report company changes and deliver Confirmation Statements online via WebFiling service or Rapid Formations’ free Admin Portal.
Changing a company from dormant to active
You must tell HMRC within 3 months if your dormant company becomes active. If your company has ever traded in the past, you can simply sign into your existing HMRC online account and register as ‘active’ for Corporation Tax.
If your company has never traded since the date of incorporation, you will have to register for Corporation Tax online and create an HMRC online account. In both situations, you will need your company’s Unique Taxpayer Reference.
If your company is trading for the first time, you must provide the following information to HMRC:
- Full company name
- Company registration number (CRN)
- Start date of business activities
- Address where principal business activities are carried out
- Nature of business activities
- Accounting reference date (i.e. the date you will prepare the annual accounts up to)
It is important to keep and maintain accurate business and accounting records to complete your Company Tax Returns and work out your Corporation Tax liability. If you need help with your accounting and filing responsibilities, we recommend consulting an accountant or professional tax advisor as soon as possible.
If you expect your annual business turnover to exceed £85,000 (2023/24 VAT registration threshold), you will also need to register for VAT. And if you employ anyone, you will have to register with HRMC as an employer and enrol for Pay As You Earn (PAYE).
There is no need to contact Companies House when your business becomes active. This change of trading status is 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. The best way to maintain a dormant trading status is to close all business bank accounts in your company name. This removes any potential risk.
Even the smallest entry or transaction, including earning interest or paying bank charges and fees, will forfeit your dormant trading status. If this were to happen, you would be required to prepare full annual accounts for Companies House.
Before closing any active business bank accounts, remember to:
- settle all bills and liabilities, including bank charges and fees
- cancel all direct debits and standing orders
- contact all of your suppliers and service providers to ensure no further payments will be taken from your account
When everything is in order, call or visit your bank to formally close your company’s business bank account.
If and when your company starts trading in the future, you can easily open a new bank account. In the meantime, any incidental costs (e.g. incorporation fees, 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 full financial year. Furthermore, there will be no need to prepare annual accounts or Company 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 company accounts and tax returns for that period.
How to make an active company dormant
If your company was previously trading but is now dormant, you should contact the Corporation Tax department in by phone, email, or post as soon as possible. A ‘Notice to deliver a Company Tax Return’ will then be sent to your registered office address. You will be required to prepare a Company Tax Return and accounts for HMRC and pay Corporation Tax on any profits made before your company became dormant.
From this point on, your company will be considered dormant for Corporation Tax purposes. You should not have to contact HMRC until your company becomes active again.
If your company was also registered for VAT, you must tell HMRC that you have ceased making VAT-taxable supplies and want to cancel this registration. You will need to do this within 30 calendar days of your company becoming dormant. This can be carried out online, or you can notify HMRC by post using form VAT 7.
If HMRC is satisfied with your reason for canceling your VAT registration, you will receive a letter confirming the date of cancellation. You will need to file a final VAT Return and pay your VAT bill.