What is a dormant company? – HMRC & Companies House dormant company

Generally, a company or organisation is termed dormant if it is not doing business and does not have any other income, for example interests or investments. However, dormant means differently for company tax returns and corporation tax, and annual accounts and returns for Companies House in case of a limited company. It’s a likely scenario for a company to be inactive right from its incorporation date, or after operating for a short period of time.

For corporation tax, a company is usually dormant if it:

• has no income and has stopped its operations
• is a hasn’t started trading
• is an unincorporated association or club paying less than £100 corporation tax
• is a flat management corporation

For Companies House, business owners must file a confirmation statement and annual accounts with Companies House even if the limited company is dormant for corporation tax or dormant according to Companies House. A company is considered dormant by Companies House if there has been no significant transaction in the financial year. Significant transactions don’t include:

• penalties for late filing of accounts
• filing fees paid to Companies House
• money paid for shares when the company was incorporated

If the HMRC thinks that the company is dormant it will send a letter stating that they have decided to treat the company as dormant and the company does not have to pay corporation tax or file company tax returns. On the other hand, if an individual things that their company is dormant, they can inform HMRC that the company is dormant for corporation tax

There can be several reasons for a company to be inactive – to reserve a company name, to reorganise a previously active business; or any other basis. It is possible for a Limited company to stay dormant for an undefined period, but the local corporation tax office needs to be notified as soon as possible.

Some might confuse the term non-trading with dormant but there is a difference between the two. A non-trading company might mean that it isn’t doing any business but still has other accounting transactions being recorded in the books of accounts. On the other hand, a dormant company must not have any accounting transactions. Therefore, it can be said that every dormant company can be a non-trader but not all non-trading companies are dormant.

* Trading includes purchasing, selling, renting a property, advertisement, or earning interest.

Can a dormant company trade

Any of the following trading activities cannot be performed by a dormant company:

• Paying bank charges or earning interest
• Staff employment and paying wages/salary
• Buying or leasing property
• Director’s salary payment
• Buying and selling of goods and services
• Investment and receiving dividends
• Paying accounting or legal fees from the business’s bank account
• Issuing dividends

A dormant company performing any such activities will be deprived of its inactive trading status and will have to prepare full statutory accounts.

Bank account of a dormant company

It is suggested that business bank accounts should not be opened while the company is inactive. In case the company was trading previously, it is advisable to close any business bank accounts to avoid any bank charges or unforeseen payments being made, both of which would alter the company’s inactive status. Any minor payments that may need to be made can be done from a personal account.

Paying money into a dormant company

The only permitted transactions that a dormant company can perform into a business’ bank account are:

• Payments made to Companies House for altering a company name or filing yearly returns
• Payments for company shares
• Payment of delayed filing penalties to HMRC

Any other types of payments made or received are considered accounting transactions, which would jeopardise the dormant status of a company and the company will have to deal with submission of full constitutional or statutory accounts.

Dormant company reporting and filings

A dormant company needs to file an annual return with Companies House every year. The following company details need to be specified:

• Company name
• Details of Shareholders
• Details of Directors
• Information regarding issued shares
• SAIL address (if valid)
• Location of constitutional company records
• Registered office address
• Secretary’s details (if one is appointed)

Changing the status of a dormant company

Once the business owner decides to change the status of the company from dormant to active, it’s imperative to inform the HMRC within 3 months of performing any form of business activity or receiving any payment. If the company has never been trading, it should be registered for corporation tax online. HMRC will expect the company to provide the following statutory details:

• Name of the company
• Address where principal business activities might be performed
• Company Registration Number (CRN)
• Date the company became active – this will correspond to the beginning of the company’s accounting period for corporation tax
• Accounting reference date (ARD) – the date to which the account of the company will be prepared
• Standard Industrial Classification (SIC) code – nature of major business activities

The provided information will be added to the HMRC’s records and determine the company’s accounting period for corporation tax. This will run from the date the company starts to trade, until the ARD of the company’s annual accounts. HMRC will send a letter to the company’s registered office address with details of deadlines for paying corporation tax and filing company tax returns. The business should maintain correct records (business as well as accounting) to complete these tax returns and determine the company’s tax liabilities. Also, a company might consider appointing a tax advisor or an accountant like dns accountants to assist with such matters. In case a company employs staff, it will have to register as an employer for pay-as-you-earn (PAYE). Moreover, the business will have to register for value added tax (VAT), presuming its annual turn-over will surpass £85,000 (2023-24 thresholds).

Dormant for Companies House

You are required to submit your confirmation statement and annual accounts with Companies House even if your limited company is:

• dormant for Corporation Tax
• dormant according to Companies House

However, if you think that your company is dormant as per the Companies House guidelines, but at the same time it qualifies as ‘small’ you:

• can file ‘dormant accounts’ instead
• don’t have to include an auditor’s report with your accounts

You can check here what to include in your accounts if your company is small and considered as dormant for Companies House.

FAQs

When HMRC thinks your company is dormant?

You may get a letter from HM Revenue & Customs informing you:

• HMRC have decided to treat your company or association as dormant
• that you don’t have to pay Corporation Tax or file Company Tax Returns

What does it mean if a company is active dormant?

This is one of the most common queries that people have about dormant company. Here it is important to understand that Companies House status “Active” does not mean that the limited company is trading; it just means that the company is “live” and not in liquidation or being struck off.

Tags

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.