What is a dormant company?

A dormant company is a company that has been registered at Companies House but has not traded within the current financial year or received any other income such as investments.

If the company has had no significant accounting transactions during the financial year it is considered dormant for Corporation Tax purposes by HMRC.

This does not mean that the company has closed down completely.

Read on to find out more about why companies become dormant, rules for dormant companies, and how to make your company dormant…

Reasons for a company to become dormant

A company can be dormant from the date it is incorporated, or it can become dormant after trading for a period of time.

A company may be dormant for various reasons, including:

  • The company is a new limited company and has not started trading yet
  • The company has paused trading due to restructuring
  • The company has paused trading due to owner illness, maternity leave, or travel
  • The company has paused trading in preparation for a future product or service launch
  • To prevent the business name being used by another company

Dormant company rules

A company can stay dormant for any length of time. You are required to inform your local Tax office as soon as possible, and owners of dormant companies must adhere to a number of statutory obligations.

The following must be submitted to Companies House while your company is dormant:

  • Filing of annual confirmation statements
  • Filing of dormant company accounts annually
  • Reporting of any changes made to your company’s details
  • Up to date statutory records

While a company is dormant it cannot carry on any kind of trading activity or receive any form of income.

This includes:

  • Buying or selling services
  • Employing staff
  • Advertising
  • Paying salaries to directors
  • Renting or buying property
  • Managing investments and receiving dividend payments
  • Issuing dividends to company shareholders
  • Paying bank charges or earning interest
  • Paying legal or accountancy fees from the business bank account

If a dormant company carries out any of the above activities it will lose its dormant trading status and have to prepare full statutory accounts.

Transactions allowed include:

  • Filing fees paid to Companies House
  • Penalties for late filing of accounts
  • Money paid for shares when the company was incorporated

How do I make my company dormant?

If you wish to make your company dormant, you must contact HMRC over the phone or by post within 3 months of your company becoming dormant.

Once you have notified HMRC, you will receive a confirmation of acceptance of your dormant company status. This will be sent to your registered office address.

If your company has traded previously, you will receive a ‘Notice to deliver a Company Tax Return’ from HMRC. You are required to complete your tax return and pay Corporation Tax on any profits for the accounting period prior to making your company dormant.

Before contacting HMRC it is important to ensure you have settled any outstanding bills, including wages, dividends, and supplier invoices. If you have no plans to restart trading in this tax year, you should also close down your payroll (PAYE) scheme.

If you are VAT registered you will need to cancel your VAT registration within 30 days of your company becoming dormant. If you plan to begin trading again in the future, you will need to continue to send nil (empty) VAT returns while your company is dormant.

Companies cannot spend or receive any money while dormant so it is a good idea to close down your business bank account to ensure no bank charges or unexpected payments are received during this time.

You are not required to notify Companies House that your company has become dormant, but will still need to file a Confirmation Statement and dormant company accounts each year that your company is dormant.

How do I make a dormant company active?

When restarting a dormant company, you are required to contact HMRC within 3 months of any kind of business activity or receiving any form of income.

If your company has traded previously, you will just need to sign into your HMRC account and change the status of your company to ‘active’ for Corporation Tax.

If your dormant company has never traded before, you will need to register for Corporation Tax online and also for VAT if you expect your turnover to be over £85,000 during the financial year.

If your company employs staff, you are required to register as an employer and set up PAYE.

You are not required to inform Companies House that your company is no longer dormant, as they will be notified when you submit your next annual accounts.

If you have any questions about dormant companies, need assistance with making your company dormant or help filing dormant company accounts, please get in touch with us here at Wizz Accounting.

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