In case your company is presently not trading, HMRC and Companies House will consider your company as ‘inactive’ or ‘dormant’
There is no need to tell the Companies house that you company is inactive until you have the annual accounts due, however you should inform the HMRC at the earliest by contacting the office of local Corporation Tax. The relevant details can be found on the official correspondence which one receives from the HMRC or the one may use Tax Office locater on website of HMRC.
What is a dormant limited company?
A company which does not have any significant accounting transactions entered in the accounts during financial year is a dormant company. These companies are considered to be inactive for the purposes of Corporation Tax as they are not doing any trading activity including: selling and buying services and goods, purchasing or renting property, paying salaries to directors, operating payroll, paying dividends to shareholders, managing investments, earning interest, receiving dividend payments, paying the bank account fees and charges, and paying the costs of company formation and the accounting fees via business bank account.
In case any dormant company is doing these activates, the dormant status of the company will be immediately forfeited and the company will be considered as active for the purposes of Corporation Tax.
Following transactions are not included in ‘significant accounting transactions’ and therefore they can be done by any dormant company:
- The payment of the shares by subscribers.
- The fees which is paid to the Companies House in order to fill the annual terms, change company name or for the re-registration of company.
- Penalties on late filing.
Why should a limited company be dormant?
There can be many reasons for a limited company to be dormant, including:
- For protection of a trademark or brand name.
- Reservation of company name for the later use.
- Holding intellectual property or assets.
- Restructuring of existing business
- As temporary measure on illness or death of business owner.
A company can stay dormant for as long as the owner wants it to be, there are no limitations. However, certain expenses do apply for maintaining the company on official registrar. Moreover, there are some reporting and filing obligations for the dormant companies which they need to fulfill for the HMRC and Companies House.
Dormant company’s requirement for the Companies House:
The directors of limited companies should prepare the dormant accounts for the Companies House each year, regardless of company remaining dormant from a financial year to next one. The accounts must include balance sheet and relevant notes. This should be delivered in 9 months’ time of the accounting reference date of company. This date marks the end of company’s financial year. It is usually anniversary of last day of month of the company formation.
All the companies, whether dormant or active, should deliver annual return to the Companies House once every year. Purpose of this annual return is to give a picture of the important details of company at certain date. These include, company name, SAIL address, address of registered office, details of directors, the location of the statutory records of company, secretary details, details of shareholders and the share capital. The information will be used by the Companies House to confirm accuracy of details which are displayed on the public record.
The deadline of filing is 28 days of anniversary of the company formation or in 28 days of anniversary of ‘made-up’ date of previous return. An annual return must be submitted even in case the company details remain the same as the previous year. In case any details of company change, you should notify the Companies House at the earliest and also confirm changes on annual return.
Dormant Company’s requirements for the HMRC:
In case the company is dormant from date of its incorporation, HMRC should be notified via through the local Corporation Tax Office. They will send a reply in about 15 days to confirm the dormant status. Unless notified otherwise, there is no need to contact the HMRC again until the company is active.
In case the company was trading previously before it became dormant, there will be requirement of completing the Company Tax Return and paying the Corporation Tax for active period. After that the company will be considered as inactive until it starts trading again.
If the you company was previously active and was registered for VAT, you should tell the HMRC that you have stopped making the supplies which are VAT taxable and you want to cancel the VAT registration. It should be done in 30 calendar days of the company becoming inactive. It may be done by post or online using the form VAT 7. If the HMRC is satisfied with the reason of cancelation, they will send you a letter in which date of cancelation will be mentioned. There will be requirement to file the final VAT Return and pay VAT due, if any.
How can I change the status of my company from dormant to active?
When the dormant company is active again, you should notify the HMRC in 3 months of doing any kind of the business activity. In case your company has traded in past, you may sign in the HMRC account and register the company as ‘active’ for the Corporation Tax. In case the company has not traded previously, you must register online for the Corporation Tax. In both the situations, the Unique Tax Payer Reference (UTR) of your company will be required.
The new companies need to provide following statutory information to HMRC:
- Company name in full
- The company registration number (CRN)
- The date on which business activity started.
- The address where the principal activities of business are carried out.
- The nature of major business activities of the business.
- Accounting reference date – date to which company will be preparing annual accounts.
The information will be used by the HMRC to determine the accounting period of Corporation tax and the deadlines for filing tax returns of your company and payment of the Corporation Tax. Accurate accounting and business records must be maintained by you in order to complete the tax returns and to work out the tax liabilities. In case you require help with the responsibilities of accounting and filing, you can consult a tax advisor or an accountant.
The returns should be continued to be filed within the 28 days of the ARD. Normal annual accounts will also have to be prepared for the Companies House. The annual accounts and the tax returns should be submitted to the HMRC in 12 months of end of the accounting period. And the Corporation tax should be paid in 9 months of end of every accounting period.
In case there is an expectation of the annual turnover of your company exceeding £81,000 (which is the VAT threshold for 2014-15), you should also register for the VAT. The company will need to be registered as employer with the HMRC in case there is any employee of your company.
When the company becomes active, there is no need for you to contact the Companies House. The change of the trading status shall be reported when the annual accounts are delivered.
Do I need bank account for the dormant company?
Money cannot be spend or received by the dormant companies, so in order to maintain the dormant status, is to cease or close opening bank accounts of business, in the name of your company. The smallest transaction or entry, including paying bank fees and charges, or earning interest, can forefeet the company’s dormant status and result in requirement for submission of annual accounts for the Companies House.
In case the company does have an active bank account, it should be made sure that the bills and liabilities have been paid to and by your company, before the account is closed. The standing orders and direct debits should be canceled and all the service providers and suppliers should be contacted to make sure that no more payments are taken from the account. After everything is in place, visit or call the local branch in order to formally close account.
If the company starts trading in future, a new bank account for business can easily be opened. Before that any costs like accountancy fees, costs of company formation, etc. may be paid through personal bank account.
Can I protect a company name by registering a dormant company?
Yes – Registering a limited company is the only way of protecting company name; otherwise the name could be used by someone else in order to form their company. There is no requirement for you to trade through the company; the company can be registered with dormant status for the only purpose of protecting a trademark or brand name.
Our name check facility can be used to check availability of the proposed name for your company. It is on our home page.