The UK’s Companies House requires all limited companies, be it trade or otherwise, to submit annual accounts and a confirmation statement. This also includes dormant companies. It is the company’s board of directors who are the ones who will file the company accounts and reports properly and on time, besides running the company. While the board of directors may not worry too much over a dormant company, they are still required to file annual accounts and send Companies House confirmation statements every year, even if they no longer intend to continue any kind of business activity or receive any form of income.
A company is considered “dormant” if it has stopped engaging in any business activity and no longer receives any form of income whatsoever (i.e. investments). The term “dormant” can have different interpretations for Corporation Tax and Company Tax Returns and a company’s annual filings for Companies House. Though rare, sometimes some board of directors assume that Companies House will not require their annual accounts filed, because the HMRC is also not requiring that. However, the two government institutions have different set of rules.
Once a company informs the HMRC that their company is dormant, then they no longer need to pay Corporation Tax or file another Company Tax Return (unless the HMRC explicitly gives them notification to submit a new Company Tax Return). But in the case with Companies House, a dormant company will still have to file a confirmation statement and annual accounts.
The Companies House determines whether or not a company is dormant and it becomes dormant when it had no significant accounting transactions in the fiscal year it filed its accounts. The company’s significant accounting transaction is included in its accounting records that they submit to HMRC and Companies House.
Significant transactions do not include:
- Filing fees paid to Companies House
- Penalties for late filing of accounts
- Money paid for shares when the company was incorporated
Dormant companies are ones that no longer have any “active” transactions happening in every fiscal year it’s supposed to have it. A dormant company that qualifies as ‘small’ under the rules of Companies House, then it can file ‘dormant accounts’ without including any auditor’s report in its accounts.
It costs nothing to file dormant accounts, but if dormant companies files later than the appointed time, or fails to do it for the fiscal year, then penalties and other costs will definitely be incurred. The board of directors are responsible for filling their accounts and ought to take this responsibility seriously, otherwise non-compliance will result in additional fines and might even lead to Companies House dropping your company off of the register.
Dormant companies can file their confirmation statement online for a fee of £13.
When a dormant company restarts trading, it does not need to notify Companies House. When they’ll file their accounts again, it will show that they’re no longer a dormant company. The company’s board of directors can choose to close their company using the new Companies House online service in order to request them to strike off and dissolve the company, if the board no longer sees any need for the company to exist.
Dormant companies (also referred to as ‘inactive companies’) are often mistaken for being closed or obsolete companies; this misconception is wrong. Under normal circumstances, companies have the option to declare their institution as a dormant business for reasons such as:
- To reserve a company name before the business begins formally trading
- Restructuring a previously active business
- Protecting IP and trading rights from other businesses who may use it
The reasons why companies may want to go into dormancy is irrelevant. What’s important is that they understand what the dormancy period that their company is getting into and what requirements and other obligations (by the Companies House) that they need to adhere to in order to maintain the dormant status of their company.
Table of Contents
- What is a Dormant Company?
- Why Should I Make My Company Dormant?
- How Do I Make My Company Dormant?
- What are My Obligations?
- When Can I Make My Company Dormant?
- How to Make a Private Company Dormant
- How Do I Tell HMRC My Company Is Now Dormant?
- Does it Cost to Make a Company Dormant?
- How Do I Get Money Out of My Dormant Company?
- How Do I Restart My Dormant Company?
- Can I Register a Company and Leave it Dormant?
- How Long Can I Keep My Company Dormant?
- Do Dormant Companies Need to File Annual Returns?
- Do Dormant Companies Need to be Audited?
- Does a Dormant Company Need a Bank Account?
What is a Dormant Company?
A dormant company is a company that is registered with Companies House but has no active trading activities and is not generating any income. As the business owner, you have the option to choose to apply for dormant status from the date of its incorporation, or at a later time. The dormant status of your company will change once you start participating in any kind of trading activity or generate income. Dormant companies are exactly as their name implies – inactive and not trading.
Why Should I Make My Company Dormant?
If you’re in the contracting or subcontracting business, then there are some good benefits for making your company dormant. For example, when you want to take a break from contracting because you’re looking to get a permanent employment, then applying for dormancy at Companies House will be good for you. If you also want to register a limited company early because you don’t want someone else to get your company name, or for whatever reason, you can register your company as dormant for future use.
How Do I Make My Company Dormant?
Before doing anything you must first communicate with the local Corporation Tax office about your intent to put the company on temporary hold, and it must be done in writing. You will then be required to submit a Company Tax Return by the HMRC if your company was active prior to your application for dormancy. The process is done via HMRC’s website protal and then they will review your documents and change your company’s status to ‘dormant’ in their records. Any outstanding Corporation Tax also needs to be settled before HMRC will approve your request.
Lastly, you’ll also need to close your payroll and ensure all outstanding bills are paid before you have your company declared as dormant. All dormant companies that do not comply with this obligation from Companies House shall suffer fines and other penalties, including the possibility of being stricken off of their records.
What are My Obligations?
Companies House and HMRC makes no time limit for companies intending to make their company dormant; however, once your company has been registered as a dormant company, you are required to fulfill certain obligations.
One of those obligations include filing annual accounts with Companies House. This statement details the key dates of your company, the board of directors and information about shares issued. You’ll also need to let go of all your employees because a dormant company cannot have any. The same is true when it comes paying out dividends to shareholders – that stops the minute your company has been declared dormant also.
When Can I Make My Company Dormant?
HMRC’s guidelines for registering an inactive company states that in order for them to consider a company dormant, it must follow these criteria below:
- A newly incorporated company that has no trading history yet
- An ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
- A company that will never be able to trade by consequence of its formation – incorporated for the sole purpose of owning special assets like land or intellectual property.
- An existing company that has been trading in the past, but does not trade anymore
- A company that’s no longer trading and will soon be stricken off of the Companies Register
On the other hand, despite your efforts, your company will lose its dormant status and will once again be considered for corporation tax purposes if it engages in any of the following activities:
- Continuing to trade or do any professional work even after it had been declared dormant by the HMRC and Companies House
- Buying and selling goods with the intention to make profits or create a surplus
- Still provide services
- Continue to earn interest
- Managing investments
- Continue to receive income
How to Make a Private Company Dormant
We’ve already covered this above and the first thing you need to do in order to declare your company as dormant is to contact HMRC. Dormant companies can do a simple phone call to the HMRC to inform them about the company’s change of status, if they have never received a ‘notice to file a Company Tax Return’ from HMRC. Alternatively, if your company has received this notice on a previous occasion, or has previously filed a return, you must file a new Company Tax Return via the HMRC’s website, as this will inform them that your company has hold all trading and is currently inactive.
How Do I Tell HMRC My Company Is Now Dormant?
Technically, Companies House does not require you to notify them about the change of status of your company until your next filing of your annual accounts, but you should inform HMRC as soon as you can to avoid any issues and/or penalties, you do this by contacting the office of local Corporation Tax. They will reply your email in approximately 15 days confirming your company’s dormant status. Then you don’t need to contact HMRC until you will declare the company active again.
If your company was actively trading prior to you making it dormant, then you are required to complete HMRC’s Company Tax Return and pay the relevant Corporation Tax for the active period. Once this is done HMRC will tag your company as dormant in their records until it will resume trading activities. All the relevant submissions, filings, and contact information are available on HMRC’s official website.
Does it Cost to Make a Company Dormant?
Once the HMRC has approved the registration of your company as dormant in their records, you will be required to carry some financial obligations in order to maintain its inactive status. Aside from the costs you’ll also need to file an annual confirmation statement every year in order to prevent other people from registering your company name (as they might assume that it’s available since no one is legally using it), as well as an updated information about the current situation of the company and the people managing it. You can download and fill up the Companies House form online at HMRC’s website and pay a £13 fee (this is for dormant companies that have never traded). It’s easy to remember the date for submitting the company’s confirmation statement, because that would be the date of incorporation of your company.
Another obligation you need to carry is submitting dormant company accounts which is also available on HMRC’s website at no cost. However, it is only the filing process for dormant companies that’s free of charge and there are additional costs if there is any delay of filing the accounts and HMRC might also fine you for penalties. Non-compliance, no matter the reason, can lead to bigger fines and if such acts of non-compliances causes a serious breach, then Companies House will be forced to strike off your company from the register.
How Do I Get Money Out of My Dormant Company?
You may extract money from your dormant company for certain reasons such as paying out dividends to investors. But this action will trigger a clause in the Companies House rules regarding dormant companies and instantly make the inactive company active again. The best route for you to go without changing your company’s dormant status will include these things below:
- Making pension contributions on behalf of the company’s board of directors.
- Repaying company members of any outstanding loan balances.
- Paying the final dividend amount to shareholders.
How Do I Restart My Dormant Company?
The process of reactivating your company from dormant to active is the same when you applied for dormancy at HMRC, your company’s board of directors need to inform them in writing like they did before. Make sure that you submit the applciation for reactivation of your company at least 3 months prior to it restarting trading or receive income again. There are 3 basic steps to do this.
- The board of directors of your company must inform HMRC of your intention to resume trading by registering for Corporation Tax in the near future at no more than 3 months from the date of notification. You’ll also be required to pay all withstanding corporation tax bills due within 9 months and 1 day from the accounting reference date of your firm (consult with HMRC for further assistance).
- All company accounts must be sent to the Companies House within 9 months of the accounting reference date of your company.
- The last task is to submit your company’s tax return to HMRC within 12 months of your company’s accounting reference date.
Most of the paper work will have to do with HMRC because Companies House does not specify any requirement for a dormant company to inform them that it will resume trading again. They will eventually know if it does so when the company submits its next set of annual statutory accounts.
You may also want to read: How to Check Your Company Credit Score in the UK and Make Sure it’s Optimal
Can I Register a Company and Leave it Dormant?
Yes, that’s possible. You can register your company as dormant and leave it that way if its not ready to trade yet; however, you must submit annual dormant company accounts as well as a confirmation statement to Companies House in order to keep it dormant and avoid any unwanted penalty fees. Once your company is all set to begin trading, then you only need to notify HMRC and follow the steps outlined above, in order for them to record your start date and begin creating your tax documents for every fiscal year.
How Long Can I Keep My Company Dormant?
Companies House also does not impose any deadline or time limit for keeping your company in its dormant status. As long as you fulfill your obligations on submitting your annual returns and annual accounts with them on time yearly, they will not bother you about it. It seems that Companies House has a very lenient rule regarding dormant companies and they make the requirements as easy as possible to give no problems to firms that want their status as dormant.
Do Dormant Companies Need to File Annual Returns?
There’s no further need for your company to pay corporation tax or file another company tax return if you’ve already informed HMRC that you will no longer be trading.
Do Dormant Companies Need to be Audited?
Yes, dormant companies still need to be audited, except in cases where their balance sheet contains a statement or statements under CA 2006, s. 475(2). The company’s financial statement may also be audited if it is specifically required by the company’s articles of association.
Does a Dormant Company Need a Bank Account?
When a company becomes dormant it no longer will engage in accounting or financial activities until it resumes trading, therefore, it does not need a bank account. Since money is neither generated nor spent by the business, there won’t be any transactions that will take place that requires entry into the company accounts.
Whether you’re at the early stages of incorporating your business, or are already trading, you must first understand clearly what a dormant status will entail and how it can affect your company. You’re always welcome here at Your Company Formations to get consultation regarding dormant companies and other related information. Feel free to contact us anytime!