A dormant company is one that has been registered with Companies House but is not carrying on any kind of business activity or receiving any form of income. Therefore, HMRC considers it dormant (or inactive) for corporation tax purposes. It can be dormant from the date of its incorporation, or it can become dormant after a period of activity.
There are many reasons why a company may be dormant – to reserve a company name whilst preparing to launch the business; restructuring a previously active business; or an owner requires an extended period of time off due to illness, maternity leave, travel, a sabbatical, or any other reason.
It can remain dormant for any length of time, but you must inform your local corporation tax office as soon as possible and maintain a number of statutory obligations for Companies House, including filing annual returns and dormant accounts, reporting changes to registered company details, and keeping records up-to-date and available for public inspection.
- Can a dormant company trade?
- How do I make my company dormant?
- Dormant company bank accounts
- Paying money to a dormant company
- Dormant company reporting and filing requirements
- Does a dormant company have to pay any tax?
- How do I make a dormant company active?
- Can a dormant company be a guarantor of another limited company?
Can a dormant company trade?
It cannot carry on any kind of trading activity or receive any form of income, which includes:
- Buying and selling goods and services
- Leasing or buying property
- Employing staff
- Paying directors’ salaries
- Managing investments and receiving dividend payments
- Issuing dividends to shareholders
- Earning interest or paying bank charges
- Paying legal or accountancy fees from the business bank account
A dormant company that carries on any such activities will forfeit its dormant trading status and be required to prepare full statutory accounts.
How do I make my company dormant?
To register a new company as dormant or change the trading status from active to dormant, you must contact HMRC’s corporation tax office in writing, stating the date from which it has been or will be dormant. You can find these contact details on any official letter from HMRC that has been delivered to your registered office address. Alternatively, you can locate your nearest tax office. Within approximately 15 days, you should receive notification at the registered office address that states acceptance of this dormant status.
If your company was previously trading, HMRC will send a ‘Notice to deliver a Company Tax Return’ after you have contacted your local corporation tax office. This must be completed for the corporation tax accounting period prior to it becoming dormant. It must be delivered to HMRC online. You will have to pay any corporation tax that it owes if it made a profit during that time. You should also close down your payroll and cancel your VAT registration, if applicable.
Before declaring your company as dormant, you should ensure all outstanding bills have been paid, including directors’ salaries, employees’ wages, shareholders’ dividends, direct debits for service providers, and all accounts with suppliers. If it is owed any money from clients, you should arrange to have these accounts settled.
Upon satisfying all the above, you should not have to contact HMRC again until it begins trading.
Notifying Companies House
You do not have to notify Companies House when your company becomes dormant, but you will still have to file a confirmation statement (formerly known as an annual return) and dormant accounts every year. The submission of annual accounts is the way in which Companies House is informed of a company’s dormant status, so they are notified at a much later date than HMRC.
Dormant company bank accounts
It is advisable to avoid opening a business bank account whilst your company is dormant. If it previously traded, it would be a good idea to close any business bank accounts to avoid any bank charges being applied to the account or unexpected payments being made, both of which would forfeit your company’s dormant status. Any incidental payments you may require making can just be paid from a personal account.
Paying money to a dormant company
The only transactions that a dormant company can put through a business bank account are:
- Payments for shares from the first shareholders.
- Paying fees to Companies House for filing a confirmation statement and changing the company name.
- Paying late filing penalties to HMRC.
All other types of payments made or received are considered ‘significant accounting transactions’, which would jeopardise the dormant status and require the submission of full statutory accounts.
Dormant company reporting and filing requirements
1. Requirements for Companies House
Dormant companies are required to prepare dormant accounts and a confirmation statements for Companies House every year.
The accounts consist of a balance sheet and any relevant notes. You can deliver this information to Companies House by post or online using form AA02. The deadline for filing accounts is 9 months after the end of the financial year, which is known as the ‘accounting reference date’.
However, if you are filing your company’s first accounts and they cover a period of more than 12 months, the deadline will be 21 months of the date of incorporation. Companies House will notify you of these filing dates closer to the time, but you should set up your own reminder system in any case.
The annual confirmation statements, which was previously known as the ‘annual return’ is a document that outlines or confirms key company details at a certain date, including:
- Company name.
- Registered office address.
- SAIL address (if applicable).
- Directors’ details.
- Secretary details (if one is appointed).
- Shareholders’ details.
- Location of statutory company records.
- Information about issued shares.
- Nature of business activities (SIC codes)
- Information about people with significant control (PSCs)
A company’s first confirmation statement must be delivered 12 months after the date of incorporation. Subsequent statements are due 12 months after the date of the previous statement. There is no limit to the number or frequency of statements filed each year. The purpose is simply to confirm important details to ensure the public register remains accurate and up-to-date.
Dormant companies must also ensure statutory records are kept up-to-date and made available for public inspection at the registered office or SAIL address. Any changes to the registered details of a company must be reported to Companies House as soon as possible. The public record will be updated accordingly.
2. Requirements for HMRC
Dormant companies are required to file a Company Tax Return with HMRC if they were previously trading before becoming dormant. Companies that are dormant from the date of incorporation do not have to file any tax returns until they become active.
After informing your local corporation tax office that it has ceased trading, you should receive a ‘Notice to deliver a Company Tax Return’. This must be completed to cover the period of activity before your company became dormant and to work out the amount of corporation tax your company owes, if any.
Other than this tax return, a dormant company should have no further obligation to contact HMRC until it begins trading or the company is dissolved.
Does a dormant company have to pay any tax?
No, dormant companies do not have to pay any tax until they become active. However, if a dormant company was previously trading, it must pay any outstanding tax liabilities to HMRC from that period of activity.
How do I make a dormant company active?
If and when you are ready to make your dormant company active, you must contact HMRC within 3 months of carrying on any kind of business activity or receiving any form of income. If your company has never traded before, it must be registered for corporation tax online and you will be required to create a Government Gateway Account. HMRC will ask you to provide the following statutory information:
- Company name.
- Company Registration Number (CRN).
- Date your company became active (this will be the start of your company’s accounting period for corporation tax).
- Address where principal business activities are carried out.
- Standard Industrial Classification (SIC) code (the nature of your company’s main business activities).
- Accounting reference date (ARD) (the date to which your company accounts will be prepared).
HMRC will add this information to their computer records and work out your company’s accounting period for corporation tax. This will run from the date it begins trading, up until the accounting reference date (ARD) of your company’s annual accounts.
You will receive a letter at your registered office address with your company’s deadlines for paying corporation tax and filing Company Tax Returns. You must maintain accurate business and accounting records to be able to complete these tax returns and work out its tax liabilities. You may wish to consider appointing an accountant or tax advisor to help with such matters.
If your company employs staff, you must register as an employer for PAYE. You may also have to register it for VAT if its annual turnover is expected to exceed £85,000 (2018-19 threshold).
There in no need to immediately notify Companies House when your dormant company becomes active. You will provide notification of your it’s active trading status when the next annual accounts are filed.
Can a dormant company be a guarantor of another limited company?
A dormant company can be set up as limited by shares or limited by guarantee for the sole purpose of acting as a guarantor of another company and agreeing to contribute a sum of money towards its debts in the event of insolvency. However, to maintain its dormant status, a corporate guarantor must not have any ‘significant accounting transactions’ going through its accounts at any time.
If you set up a dormant company to simply act as a guarantor of another company, there shouldn’t be any need for you to put any transactions through the accounts, for example:
- If you register a dormant company limited by shares, the value of the shares can be set to match the amount you have guaranteed to contribute toward the other company’s debts.
- If you register a dormant company limited by guarantee, the pre-determined sum of the guarantee can be set to match the amount you guarantee to contribute toward the other company’s debts.
The payment of shares and guarantees will not be classed as a significant accounting transaction, because these fixed sums of capital are in place when your dormant company is incorporated. However, if it receives any kind of payment for its role as a guarantor, or if the directors or members (shareholders or guarantors) of the dormant company receive any income, the company will no longer be considered dormant.