Is my new company dormant or active?

The rules around whether companies are considered dormant or active can sometimes seem confusing, not least because Companies House and HMRC have different definitions of “dormant company.”

In this blog, we’ll explain what dormancy entails, whether your newly incorporated company is dormant or active, how to change your company’s trading status, and your legal obligations, depending on your status.

You’ve just formed your company

As soon as you register your company, you will see that its “status” is listed at Companies House as “active.” This just means the company is in existence and has not been closed down. It gives no indication as to whether the company is actually doing anything.

You may also remember that, when preparing your registration form, you were asked to provide up to four Standard Industrial Classification (SIC) codes, which tell Companies House the nature of your business activities.

For example, if you intend to manufacture ice cream, you’d use the SIC code 10520. There is also a dedicated dormant SIC code, 99999, under which you can register a new company if you intend to make it dormant.

However, SIC codes are not legally binding and do not automatically make a new company dormant. They are purely informative, allowing Companies House to maintain an accurate record of all registered companies’ activities.

In other words, just because you reported the SIC code 99999 does not mean the company is now dormant, nor does reporting 10520 mean that that’s actually what you are actively doing.

See also: What is a SIC code and why does my company need one? See also: Company filing and reporting requirements See also: VAT terms you should know as a UK business owner

It doesn’t mean that your SIC code(s) should ever be false. If your business activity changes at any point, you should update this information by filing a confirmation statement.

With all that said, it might be fair to say that Companies House views all companies that are registered as essentially being active and are therefore needed (they close down any companies they feel are no longer doing anything or are no longer required).

The information above serves only to show that you can’t necessarily rely on the information reported at Companies House when you incorporate a company to signify whether it is dormant or not. HMRC, the other body you need to think about, will similarly consider your company to be actively trading by default.

Making your new company dormant

You might want to set your company as “dormant” upon incorporation for many reasons. For instance, the company may have been registered simply to reserve a company name so no one else would use it.

To obtain a “dormant status”, start by telling HMRC. Dormancy, for HMRC’s purposes, is simply a company that is “not trading”. Wait until you’ve received your Unique Taxpayer Reference (UTR) from them in the post, as you’ll need to provide this number (along with your company name). The letter will arrive automatically, generally within a couple of weeks of incorporation.

You can notify HMRC that your new company is dormant online or in writing. We’ve created a free Dormant Company Notification Letter Template to help you with this step.

Once HMRC has received and accepted your notification, your new company won’t be required to prepare a Corporation Tax (CT) return or pay CT until it starts trading. HMRC may ask you to inform them again in a few years time, to confirm your company continues not to trade.

With regards to Companies House, there is no specific procedure for declaring your new company dormant. Instead, the type of annual accounts you later file will indicate the “status” of your company to anyone who is looking.

So, if your company was dormant for Companies House’s purposes during a full accounting period, you can file “dormant company accounts”.

To be able to submit dormant company accounts, your company needs to have had no “significant account transactions” during that accounting period. A significant accounting transaction is any transaction that needs to be entered into the company’s books. It does not matter how big or small the transaction is (for example, it could be as little as 1p) or where it came from (it could be an interest payment you have received or a payment you have made to buy a website domain).

The only accounting transactions that are not considered significant are:

• Payments received from the initial shareholders of the company (the “subscribers”) for their shares taken up at incorporation
• Fees paid to Companies House (for example, the confirmation statement fee)
• Late filing penalties to Companies House for the annual accounts

If a company experiences any transaction except for the three listed above, it will be ineligible to file dormant company accounts.

Making a dormant company active

We’ve explained above how to switch from ‘active’ to dormant’, but if you want to change from ‘dormant’ to ‘active’ again, start by updating HMRC. You have three months to let them know that you have started trading.

To do this, register for Corporation Tax online and provide the following information: 

• Company’s registered name and number
• Unique Taxpayer Reference (UTR)
• Start date of business activities
• Primary business address
• A description of what the company does
• Accounting Reference Date (ARD)

Once registered, you’ll need to work out your Corporation Tax (CT) liability and pay your bill every year. This way, HMRC knows that the company is active for CT. 

As before, you don’t really ‘notify’ Companies House of your company’s trading status. Instead, when the time comes, you simply file the relevant (non-dormant) annual accounts to Companies House. The contents of your accounts depend on your company size, which we explain later in this blog. In any case, the fact you are no longer submitting dormant company accounts will signify to anyone who is looking that the company is trading.

Additional requirements

When making a dormant company active, you might also need to register for Value-Added Tax (VAT). This will apply if the company’s taxable turnover exceeds £90,000 in a 12-month period or is expected to do so in the next 30 days.

In addition, if you employ (or plan to employ) staff, you’ll have to register as an employer with HMRC and set up payroll.

Reporting requirements for active companies

The reporting requirements for an active company’s accounts are different from those for a dormant one. The information you must report to Companies House on the accounts normally depends on the company’s size.

Micro and small companies can file abridged accounts containing a balance sheet and supporting notes.

Meanwhile, medium and large companies must file statutory (full) accounts to Companies House and HMRC, consisting of:

• A profit and loss account,
• A balance sheet,
• Supporting notes,
• Directors’ report,
• Auditor’s report (unless the company is exempt from audit), and
• A director’s name and signature

Active companies also need to submit an annual confirmation statement and details of any other changes to your company to Companies House.

Changing from ‘active’ to ‘dormant’ if you have traded before

If you’ve traded for some time and wish to make your company dormant, you can change your trading status in a manner not too dissimilar to what we looked at before. First, notify HMRC that your company is dormant for CT. You must provide the company’s name, UTR, and the date it stopped trading.

You’ll then shortly receive a Notice to Deliver a Company Tax Return at your registered office address, instructing you to file a final tax return and accounts for the period leading up to the date the company stopped trading.

After this point, your new company is considered dormant by HMRC. If you are also VAT-registered, you’ll need to cancel your registration within 30 days of the company becoming dormant. The easiest way to do this is via your VAT online account.

When the time comes, you should submit accounts that reflect the company’s dormancy to Companies House. This will demonstrate the company’s new status.

Remember, you still need to file an annual confirmation statement regardless of your new company’s trading status, as well as all other usual company details changes, to Companies House.

Reporting requirements for dormant companies

While a company is dormant (for Companies House and HMRC’s purposes), it still must make certain annual submissions to Companies House.

Firstly, the confirmation statement. Essentially, this confirms several things to the registrar, including that the details about your company are still correct, as well as any changes to its ownership.

As a new company, the first confirmation statement is due 12 months and 2 weeks after the incorporation date. After that, you must file at least one confirmation statement every year.

Secondly, annual accounts. Even though a company may be dormant for Companies House’s purposes, it must still submit its annual accounts. As mentioned earlier, dormant companies have the option of submitting dormant company accounts (Form AA01), which essentially consists of just a balance sheet.

The first set of accounts is due 21 months after the incorporation date for a new company. Then, you must file dormant accounts nine months after the company’s accounting reference date (ARD, also known as financial year-end).

Any other changes, such as changes to its directors, registered office address, or People with Significant Control, etc., need also be reported to Companies House as and when they happen.

The bottom line

Whether a company is dormant depends on who you ask, with Companies House and HMRC having different definitions.

As a general rule, however, most companies are expected to be active unless they inform HMRC that they are dormant for corporation tax purposes. Later, they might submit dormant company accounts to Companies House, demonstrating they are also dormant for Companies House’s purposes.

However, a company’s “status” can change at any time. A dormant company can become active at any time should it wish to do so (and vice versa). Regardless of the trading status of your company, it will still have several filings and obligations it must complete every year.

We hope you found this article helpful. If you have any questions about dormant companies, please comment below.