A dormant (inactive) company
A dormant limited company is one which is registered with Companies House, although is not performing any kind of business activity or receiving any form of earnings. As a result, such a company is considered dormant (or inactive) by HMRC for corporation tax reasons. It is possible for a company to be inactive right from its incorporation date, or after a period of activity.
There are several reasons why a company may be inactive. These may include but not be restricted to: to reserve a company name while getting ready to launch the business; to reorganise a formerly active business; or perhaps a company owner demands an extended period of time off as a result of illness, travel, maternity leave, a sabbatical, or any other basis.
As it is possible for a Limited company to stay dormant up to any length of time, you need to notify your local corporation tax office as soon as possible and uphold a number of statutory obligations for Companies House, including filing dormant accounts and annual returns, reporting modifications to registered company details, keeping company records updated and accessible for public inspection.
Is it possible for a dormant company to trade?
No. A dormant company cannot receive any form of profits or perform any of the following trading activities:
- Paying bank charges or earning interest
- Buying or leasing property
- Staff employment
- Buying and selling of goods and services
- Investment management and receiving dividend (bonus) payments
- Payment of directors’ salaries
- Issuing dividends (bonus) to shareholders
- Paying accounting or legal fees from the business’s bank account
A dormant company that performs any such activities will be deprived of its inactive trading status and be mandated to prepare full statutory accounts.
How do I make my company inactive or dormant?
To list a new company as active or modify a company’s trading status from active to inactive, you will have to get in touch with your local corporation tax office in writing, stating the date from which the company has been or will be inactive. These details can be found on any official letter from HMRC delivered to your registered office address. If not, locate your nearby tax office. In no longer than 15 days, you should receive a notification at your company’s registered office address that states acceptance of this dormant (inactive) status.
Should your company have been trading beforehand, HMRC will send a ‘Notice to deliver a Company Tax Return’ after you have informed your local corporation tax office. This should be completed for the corporation tax accounting period before your company becomes dormant and should be delivered to HMRC online. You will need to pay any corporation tax owned by your company should it have made profits during that time. In addition, if applicable, you must cancel your VAT registration or close down your payroll.
Before pronouncing your company as inactive, you need to make sure that every outstanding bill has been settled, including direct debits for service providers, employees’ wages, directors’ salaries, shareholders’ dividends, as well as every account with suppliers. Should clients owe your company any money, you will have to make arrangement for this to be settled.
Upon fulfilling all the above, you need not contact HMRC again until your company starts trading.
You need not notify Companies House when your company becomes inactive; however, you still need to file dormant accounts and annual returns every year. The annual accounts’ submission is the procedure through which Companies House is notified of a company’s inactive status; thus, they are informed at a much later date than HMRC.
Dormant (inactive) companies bank accounts
It is recommended you do not open a business bank account while your company is inactive. Should your company have traded previously, it would be a great idea to close any business bank accounts to circumvent any bank charges applicable to the account or unforeseen payments being made, both of which would sacrifice your company’s inactive status. Any minor payments you may need to make can be done from a personal account.
Paying money into a dormant (inactive) company
The only permitted transactions that a dormant company can put through a business’ bank account are:
- Payments made to Companies House for changing a company name and filing annual returns;
- Payments for company shares from the first shareholders;
- Payment of late filing penalties to HMRC;
All other types of payments received or made are considered ‘important accounting transactions’, which would endanger the dormant status of a company and involve the submission of full constitutional or statutory accounts.
Dormant company reporting and filing requirements
Requirements for Companies House
Dormant (inactive) companies are mandated to file annual returns and dormant company accounts with Companies House. The Dormant company account consists of a balance sheet and any related notes. This information can be delivered to Companies House either by post or online with the use of form AA02. The time limit for filing company accounts is nine months after the end of your company’s financial year, generally known as the accounting reference date’. Nonetheless, should you be filing your company’s first accounts and they cover over 12 months, the deadline will be 21 months from the incorporation’s date. Companies House will inform you of these filing dates in plenty of time.
In addition, dormant companies need to file an annual return with Companies House yearly. This is a document that lists the important company details at a specific date, including:
- Company name
- SAIL address (if valid)
- Registered office address
- Details of Directors
- Secretary’s details (if one is chosen)
- Details of Shareholders
- Information regarding issued shares
- Location of constitutional company records
The first annual return of a company has to be delivered within a year from the incorporation’s date. Subsequent returns are payable within a year of the date of the earlier annual return. There exists no limit to the frequency or number of returns filed every year. The aim is simply to authenticate significant company details to guarantee the public register remains correct and updated. Likewise, dormant companies must make sure statutory company records are kept updated and made accessible for public inspection at the SAIL or registered office. Any modification to a company’s registered details has to be reported to Companies House fast. The public record will be updated accordingly.
Specifications for HMRC
Dormant companies are expected to file a Company Tax Return with HMRC if they were initially trading prior to becoming inactive. Companies that are dormant from their date of incorporation need not file any tax returns until their active again.
Subsequent to informing your local corporation tax office of your company’s dormant status, you must receive a ‘Notice to deliver a Company Tax Return’. This has to be completed to cover the activity period before your company became dormant and to estimate the amount of corporation tax payable by the company (if any).
Apart from this tax return, an inactive company need not contact HMRC until it starts trading or the company is dissolved.
Does a dormant company have to pay any tax?
A dormant company need not pay any tax until it becomes active. Conversely, should a dormant company be trading previously, it must pay out any outstanding tax liabilities to HMRC from that activity period.
How can I make a dormant company active?
Whenever you are set to make your dormant (inactive) company active, you need to contact HMRC within 3 months period of performing any form of business activity or receiving any form of income. Should your company have not never traded before, it should be registered for corporation tax online and you will be expected to open a Government Gateway Account (GGA). You will be required by HMRC to provide the following statutory details:
- Name of the company
- Date your company became active – this will correspond to the start of your company’s accounting period for corporation tax.
- Company Registration Number (CRN).
- Standard Industrial Classification (SIC) code – the nature of your company’s major business activities
- Address wherein principal business activities are performed
- Accounting reference date (ARD) – the date to which the account of your company will be prepared.
This information will be added to the HMRC’s computer records and determine your company’s accounting period for corporation tax. This will run from the date your company starts to trade, 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 should uphold correct business and accounting records to complete these tax returns and determine your company’s tax liabilities. Also, you may desire to deem appointing a tax advisor or an accountant to assist with such matters. Should your company employ workers, you will have to register as an employer for PAYE. You may also need to register your company for VAT in the event that its annual turnover is expected to surpass £82,000 (2015-16 thresholds).
It is not necessary to immediately inform Companies House when your inactive company becomes active, this can be done when the next annual accounts are filed.