How to Mark Company as Dormant with HMRC?

A dormant company is defined as one that is listed with Companies House, however, is not performing any business operations or generating any business income. In such a scenario, the company is considered as inactive or dormant for corporation tax purposes. Also, it must be noted that a company can be inactive or dormant from the date of its inception, or it can turn into a dormant company post a certain period of activity. There are numerous reasons why a corporation may be inactive or dormant:

• To reserve a business name at the same time as preparing to introduce the business
• Reorganising a formerly on-the-go business
• A business owner needs a prolonged period of time-off due to ailment, travel, maternity leave, a sabbatical, or any additional reason.

Certain companies can be dormant from the day of inception, however, most companies are active for a certain time period but then put an end to business trading for at least a period of time. Such trading businesses might be eligible to become inactive, a standing which will decrease the business’s continuing filing everyday tasks. To become dormant, there are numerous things a company must do:

• A company must be inactive for an entire accounting period in order to file inactive accounts. Hence, a dormant position will not be attractive to a business if the business is going to begin trading again after a few months.
• If an individual is self-assured that he/she will not be trading in the future then the apt choice is to dissolve the company and there is typically slight advantage in keeping the corporation in existence. Though dormant or inactive organisation status can prominently decrease the effort and cost to maintain a company, there will certain expenditure that will be required.

Mark a trading company as Dormant

In order to make an on-going trading company dormant or inactive, an individual must:

• Pay any unsettled bills and cancel all upcoming business contracts. These could encompass leases of equipment or buildings, telephone and internet services, insurance, utilities etc. that were previously used by the business.
• Settle the business amounts that are due for payment and ensure all the expected payment is received. An individual will be required to let go of any contracts with customers to offer goods and services.
• Pay all the outstanding value added tax (VAT) dues to HM Revenue and Customs (HMRC), if applicable and file an application to cancel the business’s VAT registration.
• Pay any last wages due to staff and end the corporation’s payroll structure.
• It is advisable to discontinue with the organisation’s bank account(s), in specific, to stay dormant the establishment must not get any interest payments from any interest bearing account.

Informing HMRC that the company is Dormant

To notify the HMRC, an organisation will be required to write to the local Corporation Tax Office declaring the date when an organisation will become or has become dormant. The company’s contact information will be e-mailed from HMRC. Later, HMRC will send to the respective registered office address a ‘Notification to send a Company Tax Return’. This notice will include the period of business operations prior to the company becoming dormant. Business will be required to finish and file the return and clear all the due / any tax owed.

HMRC will typically approve the dormant position of a business in written within approximately three weeks. From the date the organisation turns dormant, HMRC will stop considering the company as active – this means the business will not be able to receive a lot of the correspondence. In majority cases, the business will not be able to get in touch with HMRC until the corporation starts to trade again. Also, a few dormant organisations are businesses that have been listed, but not used. This might be because of numerous reasons, but can consist of:

• Registering a business name ready for trade-off but the business is not operational.
• In order to hold a fixed asset such as property. A dormant company can possess a land or property, however, with a housing development; a management company would be accountable for earnings and expenditure.
• Protecting the sole trader trading name. Although the business is being traded by a sole trader, there is nobody preventing anyone from registering the trading name as a limited company. By recording it as dormant, the business can simply protect the name.

As per the Companies House, a dormant company is categorised as an organisation without ‘noteworthy dealings during a financial year that a business would usually report.’ Substantial transactions don't include:

• Fines for late filing of accounts
• Filing fees given to Companies House
• Amount given for shares when the establishment was incorporated

It is necessary for a dormant company to file a business tax return HMRC if it previously traded prior to becoming dormant. However, organisations that are inactive or dormant from the date of inception are not required to file any tax returns till they turn active.

You can write to HMRC for help with general Corporation Tax enquiries.

Can a Dormant Company Trade?

It is not possible for a dormant establishment to carry out any trading activity or receive any form of returns, which includes:

• Employing workforce
• Receiving interest or giving bank charges
• Purchasing and selling of products and services
• Renting or buying property
• Giving directors’ salaries
• Receiving dividend payments and managing investments
• Distributing dividends to shareholders
• Paying accountancy or legal fees from the business bank account

An inactive or dormant establishment that performs any such activities will lose its dormant trading status and will be required to make full statutory accounts.

Dormant company bank accounts

It is suitable to escape opening a business bank account when a business is dormant. If the company was trading formerly, it will be advisable to discontinue any business bank accounts as this will help prevent the business from any bank charges being applied. Any supplementary payments can be made by an individual from his/her personal account.

Paying money to a Dormant company

The only dealings that a dormant company can do via a business bank account are:

• Making payment for shares from the initial shareholders.
• Giving fees to Companies House for filing an authorisation statement and altering the company name.
• Giving late filing fines to HMRC.
• Any additional types of payments received or made are treated as ‘noteworthy accounting transactions’, which would put in danger the dormant position of a business and need the submission of complete statutory accounts.

Making a Dormant company active

HMRC will ask a company to produce the below mentioned statutory information:

• Accounting reference date (ARD) – the date from when the organisation began preparing accounts
• Address where primary business activities are performed
• Name of the company
• Company Registration Number (CRN)
• Date the business company became active
• Standard Industrial Classification (SIC) code – defines the nature of business

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.