A dormant LLP is a limited liability partnership that is not currently trading. Whatever the reason for an LLP being inactive, it still has legal obligations to fulfil for Companies House and HMRC. These responsibilities fall on the designated LLP members.
In this blog, we explore everything you need to know about dormant LLPs, including the qualifying criteria, filing accounts and confirmation statements, and the steps you need to take to make an LLP dormant.
What is a dormant LLP?
A dormant LLP is an inactive limited liability partnership that is not doing business (trading) and does not receive any other form of income. Such LLPs continue to remain registered at Companies House, with their details disclosed on the public register.
In the same manner as a limited company, an LLP is dormant during any accounting period in which it has had no ‘significant accounting transactions’.
A significant accounting transaction is one that the LLP should enter into its accounting records. This includes equity, assets, and liabilities, such as:
- receiving payments for goods or services
- buying goods or services
- acquiring assets
- disposing of assets
- outstanding debts owed to or by the LLP
- paying employees and LLP members
- renting or buying premises
- managing investments
- receiving interest on a business bank account
- incurring charges or paying fees on a business bank account
- paying fees to an accountant, lawyer, or any other professional services provider
Any such transactions will forfeit an LLP’s dormant status and mean that it has to file accounts and a Partnership Tax Return with HMRC.
However, certain transactions are not classed as significant and may be undertaken by a dormant LLP, including the payment of:
- a fee to Companies House when changing the LLP’s name
- late filing penalties for annual accounts
- confirmation statement annual filing fee
- a fee to Companies House on the re-registration of the LLP
Provided that no other transactions take place during the financial year, a limited liability partnership is eligible for dormant status.
Why would a limited liability partnership be dormant?
There are several reasons why a limited liability partnership may be dormant from incorporation or after a period of trading, such as:
- setting up an LLP for the sole purpose of protecting the name of a general partnership and preventing other businesses from using it
- in preparation for a future business opportunity, ensuring that the LLP structure is ready to start trading when the need arises
- the business is not making any money, but the LLP members do not want to officially wind up (close) the firm at the present time
- temporarily ceasing trading whilst restructuring the business or researching new strategies
- the LLP members are planning to sell the business but have not yet found a buyer
- in preparation to sell to a new buyer – making the LLP dormant allows for an easier transition of ownership and also demonstrates that the business has no outstanding liabilities
- taking a break from trading to pursue other professional or personal goals
- the LLP has stopped trading and is in the transition period whilst being wound up
There is no requirement to tell Companies House or HMRC why your LLP is dormant, but they must be informed of the dormant status.
Do I need to tell Companies House if my LLP is dormant?
You do not need to tell Companies House (the Registrar) that your LLP is dormant until you are due to file your annual accounts at the end of the LLP’s financial year.
When it is time to deliver accounts to Companies House, you should prepare dormant LLP accounts. Upon receipt of these accounts, the Registrar will become aware of the partnership’s dormant status. The accounts will then be recorded on the public register.
Whilst your LLP is dormant, you must also file an annual confirmation statement with Companies House and report any changes to your LLP’s details. This is to ensure that the information held at Companies House and displayed on the public register is correct and up to date.
Do I need to tell HMRC if my LLP is dormant?
If your LLP is dormant, either from the moment of incorporation or after a period of trading, you should tell HMRC as soon as possible. You can do this by contacting HMRC’s Self Assessment department by phone, email, or post.
This will make HMRC aware of the fact that your LLP does not have to file Partnership Tax Return through Self Assessment for the financial year(s) in which it is dormant.
Should you fail to notify HMRC of your LLP’s dormant status, a Partnership Tax Return will be expected and you may receive a late filing penalty for not submitting one.
If your LLP was trading prior to becoming dormant, be aware that you will still need to file full accounts and a tax return for that period of activity.
Administrative requirements of a dormant LLP
Despite being inactive and non-trading, dormant LLPs do have a number of administrative obligations to fulfil for Companies House and HMRC, as previously mentioned.
Preparing dormant LLP accounts
Dormant LLPs must prepare dormant LLP accounts for Companies House. This is a simplified version of the financial accounts that trading LLPs are required to deliver.
Dormant LLP accounts must include:
- a balance sheet that contains statements above the designated LLP member’s signature and printed name declaring that the partnership was dormant throughout the accounting period
- any previous financial year’s figures for comparison, despite there being no items of income or expenditure for the current year covered by the accounts
- certain notes to the balance sheet
Dormant LLP accounts submitted to Companies House do not need to include a profit and loss account or an auditor’s report.
However, the partnership must still prepare full accounts for every LLP member and every person who is entitled to receive notice of general meetings.
The filing deadline for delivering accounts to Companies House is 9 months after the LLP’s accounting reference date (ARD). The ARD is the last day of the LLP’s financial year.
Filing a confirmation statement
You must prepare a confirmation statement for Companies House at least once every 12 months, regardless of whether your LLP is active or dormant.
By doing so, you are confirming that Companies House holds accurate and up-to-date information on the limited liability partnership.
If any details at Companies House are incorrect or out of date (e.g. registered office, members’ details), you should update the information on the appropriate LLP forms before filing the confirmation statement.
The deadline for delivering a confirmation statement is 14 days after the anniversary of:
- the date on which the LLP was formed at Companies House, or
- the ‘statement date’ of the last confirmation statement
You will need to pay an annual filing fee of £13, but you can send as many confirmation statements as required during the year for no additional charge.
You must inform Companies House of any changes you make to your LLP’s registered details. This includes changes to:
- the official name of the LLP
- registered office address
- details of an existing member – name, service address, usual residential address, change of status from member to designated member, or vice versa
- appointment or removal of an LLP member
- people with significant control (PSCs)
- use of a Single Alternative Inspection Location, aka a SAIL address
- the location where you keep your LLPs statutory registers
When you report any such changes, Companies House will update your LLP’s entry on the public register accordingly.
Whilst dormant, designated LLP members are responsible for maintaining a registered office address in the part of the UK where the LLP is incorporated. Official correspondence from Companies House, HMRC, and other government agencies will be sent to this address.
The LLP’s statutory registers should be kept up to date and available for inspection at the registered office. Alternatively, registers can be kept at a SAIL address or on the public register at Companies House.
Each LLP member will also need to maintain a service address to receive official, statutory communications in relation to their role within the partnership.
Do members of a dormant LLP have to file Self Assessment tax returns?
As an LLP member registered for Self Assessment, you must file a Self Assessment tax return at the end of each financial year. You still need to do this even if you do not receive any income from the business.
So long as the LLP remains registered at Companies House (i.e. it is not wound up), the partnership must have at least two members at all times. Therefore, every person who remains a member must continue to file an individual Self Assessment tax return each year.
Do I still need to maintain a registered office for a dormant LLP?
All limited liability partnerships, including dormant LLPs, are legally required to maintain a registered office address for the entirety of their existence. This address should be in the part of the UK in which the LLP is incorporated – England & Wales, Wales, Scotland, or Northern Ireland.
By maintaining a registered office address, the LLP can continue to receive official correspondence from Companies House, HMRC, the courts, and other government departments.
If you fail to keep a suitable registered office address in operation, Companies House will take action to strike off the LLP from the official public register.
Are dormant LLPs exempt from audits?
In accordance with sections 480 and 481 of The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, a dormant LLP can claim exemption from audit of its accounts if:
- it has been dormant since the date of its formation at Companies House, or
- it has been dormant since the end of its previous financial year and meets the following conditions:
- is entitled to prepare individual accounts in accordance with the small LLPs regime
- is not required to prepare group accounts
- it qualifies as a ‘small LLP’ in relation to that financial year, or would have qualified as small were in not for the fact that it is a member of an ineligible group
A dormant LLP is excluded from this exemption if at any time during the financial year in question it was:
- an authorised insurance company
- a banking LLP
- an e-money issuer
- a MiFID investment firm
- a UCITS management company, or
- an LLP that carries on insurance market activity
How long can a limited liability partnership remain dormant?
A limited liability partnership can remain in a dormant state for an unlimited period of time. However, the designated members of the LLP must continue to carry out certain administrative obligations on behalf of the business, which we discussed in detail earlier in the post.
Whilst dormant, details of the limited liability partnership and each of its members will still be publicly available on the Companies House register.
How to make an LLP dormant
If you wish to make an LLP dormant as soon as it has been incorporated at Companies House, you must not start trading. You should avoid opening a business bank account and refrain from registering for VAT or Pay As You Earn (PAYE).
This will ensure that no significant accounting transactions occur, which would result in the LLP being active. Simply contact the Self Assessment department as soon as possible to tell HMRC that your new LLP is dormant.
The situation is a little more complex if you wish to make your LLP dormant after trading for a period of time. You will need to:
- cease buying and selling goods and services
- settle all outstanding debts and liabilities – this includes wages, utility bills, rent, suppliers’ invoices, trade accounts, tax, and fees for professional services
- ensure all money owed to the LLP (e.g. from clients) is paid in full
- remove all profits from the business
- close the business bank account, or at least be certain that no transactions will take place – including banking fees, charges, and interest
- de-register the business for VAT within 30 days, if applicable
- close your PAYE scheme, if applicable
- end any leases on commercial properties
- notify all concerned parties that the LLP is becoming dormant, e.g. staff, clients, lenders and investors, suppliers, and service providers
If you need to pay for anything related to the business during the time that it is dormant, make sure the payments are debited from private funds from a personal bank account. By doing so, you will not forfeit the LLP’s dormant status.
Once everything is in order and your LLP is dormant, you should notify HMRC by contacting the Self Assessment department.
There is no limit to how long you can keep a limited liability partnership dormant. You can start trading through the business at any time in the future if need be.
So, there you have it… everything you need to know about dormant LLPs.
We’ve explained the qualifying criteria for dormant status, the reasons why an LLP may be dormant, the importance of notifying HMRC, the administrative obligations of a dormant LLP, and the steps you need to take to make a limited liability partnership dormant.
If you have any questions about this topic or anything else related to limited liability partnerships, please leave a comment below or contact our company formation specialists for advice.