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What is a Dormant Company?

You can start up your own business and register it as a Limited Company, but you don’t necessarily need to start trading right away if the time isn’t quite right for you. You can instead inform HMRC and Companies House that your company is ‘Dormant’, meaning that it is currently not trading.

Leaving your company dormant and inactive while you are not trading will mean you won’t have to pay any corporation tax. You just need to make sure that you tell HMRC as quickly as possible that your company is dormant for their records. You can notify the HMRC Corporation Tax department that your company is dormant via post, email or telephone.

When is a limited company classified as ‘Dormant’?

To be able to register your company as dormant, you need to make sure the following circumstances apply:

Your company has no significant accounting transactions to report during it’s first financial year of operation. If this is the case then your company will be viewed as being inactive for Corporation Tax purposes. So, to qualify as dormant your company must have no significant activity of:

  • Being in receipt of dividend payments
  • Earning any bank interest
  • Issuing shareholders’ dividends
  • Managing any sort of investments
  • Operating payroll
  • Paying any bank charges or fees
  • Paying any directors’ salaries
  • Paying of company formation costs and business accountancy fees through the business bank account
  • Purchasing or renting out property
  • The buying and selling of goods and services

If you manage to register your company dormant with HMRC and Companies House, but then start to carry out any of the above listed activities, then your company will immediately lose it’s dormant status and will be considered to be an active company for Corporation Tax purposes.

However, there are certain transaction and activities that are disregarded and can be carried out by a dormant company. These include:

  • Payment of shares by the first shareholders joining the company at the time of incorporation
  • Fees and charges paid to Companies House for filing an annual confirmation statement
  • The payment of any late filing penalties to Companies House

Why would you choose a dormant status for your company?

There are quite good reasons why someone would register a limited company and then give it a dormant status. One of the most common reasons for doing this is to secure their chosen brand name or trademark early to prevent anyone else trading under that name.

This is often done during the planning stages of setting up a new business that can be some months or even years in preparation of launch. Securing a company name or brand name early on can make planning easier as the company will have a secured name and firm base to build their company around.

Sometimes a business will register a dormant company simply to protect a brand name or company name that is very similar to their own. This will prevent anyone from starting up a business under a very similar name to your own and maybe benefiting in some way from your positive profile or good name through association. Quite often these dormant companies set up to protect a brand name will remain dormant for their entire lives.

Many companies will also set up a dormant company in preparation of restructuring or dividing up an existing business, then moving certain sectors over to operate under the secured dormant company name. As soon as the new company starts trading, then the dormant status will be lost.

Setting up a dormant company can also be a useful move for businesses that are dealing with the terminal illness or the death of a business owner. The dormant company can also be a place to hold intellectual property or company assets.

Dormant company compliance

While there is no official length of time that a company can remain in a dormant state, your dormant company will still need to meet with all of the statutory requirements that an active limited company has to meet each year. Plus there will still be expenses to be met to allow it to continue to remain as a registered dormant company on the official register of companies kept at Companies House.

You will also still need to fulfil your filing and reporting requirements to both Companies House and HMRC.

Companies House will require you to submit the following information for your dormant company:

Annual accounts

You will still need to prepare your accounts for Companies House in the same way as you would if you were operating an active company. Your accounts should include a current balance sheet, even if your company remains dormant with no trading activity taking place each year. Delivery of your accounts should be made no later than nine months following your accounting reference date. Your accounting reference date (ARD) is your official end of financial year date. This is usually dated the last day of the month following your company formation, so for example if you registered your company on 9th June 2018, your ARD will be 30th June each following year.

An annual confirmation statement

Regardless of being a dormant company or an active company, every single company is required by law to prepare an annual confirmation statement each year. This document is simply a confirmation from you to Companies House about the current state of your company details at this time. It confirms what details are being held about your company and displayed on public record. These details include the following information:

  • Information about your share capital
  • The company due date for filing a confirmation statement
  • The details of your company shareholders or guarantors
  • The location of your statutory records
  • Your company Directors’ details
  • Your company name and registered number of the business
  • Your company Secretary details (if you have one)
  • Your company Standard Industrial Classification (SIC) code or codes
  • Your PSC register : information held on the register of ‘people with significant control’
  • Your registered office address
  • Your Single Alternative Inspection Location (SAIL address) if you have one

It is essential that you submit a confirmation statement each year, even if your dormant company is never going to be used for trading. Should there be any changes to the information listed above, then you will need to inform Companies House as soon as possible and follow this up by confirming these changes on your next confirmation statement.

You can submit any changes to Companies House quickly and easily via their online WebFiling system.

Changing your dormant company status

When it becomes time to start trading under your dormant company name, you will need to inform your change of status from dormant to active to HMRC within three months of starting to trade. You can change the status of your company from dormant to active by signing into your online HMRC account and changing your company to to active for Corporation Tax.

For a company that has been registered as dormant from the start, you will need to register for Corporation Tax. To do this you will need your company UTR (Unique Taxpayer Reference) number. This is a separate number for your company alone and should not be confused with your own personal UTR number.

When you use your dormant company to begin trading for the first time, you will need to supply HMRC with certain information so they can update their records:

  • Full registered company name
  • Company registration number (CRN)
  • The start date of your business activities
  • The main address where principal business activities are going to be carried out
  • The nature of your business activities
  • Your accounting reference date (ARD)

Whether this is your first company, or one of many others, you must ensure that you keep accurate business accounts, meet your filing obligations and complete your tax returns each year. Should you need help with managing your business accounts, it would be wise to consult with an accountant who can take care of these tasks for you and ensure you meet your filing responsibilities on time to avoid any harsh penalties.

Can I make an active company dormant?

Yes you can. Rather than completely closing down a registered company, you can instead make it dormant. If your company was trading, but for whatever reason has now ceased trading, you can contact the Corporation Tax Office in writing to inform them that your company has ceased trading and you wish to make it dormant. HMRC will then issue you with a ‘Notice to deliver a Company Tax Return’ to your registered office. You must complete this return and file it with HMRC as soon as possible. You will be required to pay any Corporation Tax due on any profits made prior to your company being made dormant.

Once you have completed this process, your company will be officially recognised as dormant. If your company was also registered for VAT, then you must also tell HMRC that your company has ceased to make VAT-taxable goods or supplies and that you wish to cancel your VAT registration. This must be done within 30 days of your company becoming dormant. You will receive a confirmation letter from HMRC that will confirm the date of cancellation, and you will be asked to file a final VAT Return for your company.

Banking requirements for a dormant company

While you will need to have a separate bank account for your active company to carry out your business transactions, a dormant company does not need to have a business bank account. In fact, it is wise not to have one at all if you know your company will remain dormant indefinitely.

As dormant companies are not allowed to receive or spend any money, they don’t need a business bank account. Should your company spend or receive any money it will immediately cease to be dormant and will be classed as active for Corporation Tax purposes.

Should your previously active company switch to being a dormant company, it would be wise to close any business bank accounts associated with the company. This way there will be no risk of any financial transactions happening while your company remains dormant. Even the smallest of activity such as paying bank charges or earning interest will trigger a change of status from dormant to active.

Should you decide to start trading again, you can simply open up a new business bank account for your business. Until then you can pay for any costs associated with your dormant company through your own personal bank account.

Further reading:

Advantages and disadvantages of limited company formation

Explaining an Accounting Reference Date for Limited Companies

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