Although a dormant company can be made active again in the future, it is a big step and one with significant implications. If you are considering making your company dormant then it is important to understand what this means, what you may and may not do and your ongoing obligations.
What does it mean to make a company dormant?
A company that is registered with Companies House is considered to be dormant if it has no current business activity or income. This is different from dissolving a company. The Companies Act (2006) states that a company is “dormant” if it has “no significant accounting transactions”. Companies House expands on this, stating that “A company is dormant if it has had “no significant accounting transactions” during the accounting period. A significant accounting transaction is one which the company should enter in its accounting.
A company may be made dormant for several reasons, including:
- Where the owners of a company wish to take a temporary break from trading but with the intention of trading again in the future – with the break perhaps being to explore other business opportunities, take an extended holiday, take paternity/maternity leave or take time off for health reasons.
- Where a company has been registered but is not yet operational – i.e. to set up a new company for use in the future.
- To protect a company’s name from being registered by another person. This is often done by sole traders who wish to protect their interests.
- To hold business assets or intellectual property.
- As a step prior to winding up – i.e. dissolving – the company.
- Where a business has been purchased and is going through a process of restructuring before it resumes trading.
How do I make my company dormant?
Before you make your company dormant you must look at the separate requirements of Companies House and HMRC.
Making your company dormant with HMRC
HMRC will automatically consider your company dormant if:
- It is registered as a flat management company.
- It has yet to start trading.
- Has no income and has ceased trading.
- It is an unincorporated association owing less than £100 in corporation tax.
- It is a club owing less than £100 in corporation tax.
If HMRC detects that your company is dormant on the basis of your company accounts then they will write to advise you that they will treat it as dormant. In doing so, they will typically confirm that you need neither pay corporation tax nor file company tax returns.
If they have not yet written to you but you believe that your company should be registered as dormant (e.g. if it has no income and is not currently trading) then you can inform HMRC of this change in status.
Before declaring your company dormant it is advisable to:
- Ensure that any payments owed to the company are settled.
- Pay any invoices or bills that the company owes – including to third parties, suppliers, and service providers.
- Pay directors’ and employees’ salaries.
- Pay any dividends that are owed to shareholders.
You can inform HMRC that your company is dormant online. You must provide the name of your company, your 10 digit UTR number and the exact date when your company became dormant (i.e. when it stopped trading). If you prefer then you can instead inform HMRC that your company is dormant in writing or over the ’phone.
When making your company dormant with HMRC you may need also to close your PAYE scheme if you do not plan to restart trading within the current tax year, since you will – in effect – cease to be an employer during this time.
Once you have informed HMRC that your company is dormant you will not need to pay Corporation Tax or file another Company Tax Return. The exception to this would be if HMRC were to send you a “Notice to Deliver a Company Tax Return”.
In addition, HMRC advises that if you do not intend to restart trading then you should deregister for VAT (assuming that you are VAT registered). If and when you do plan to resume trading then you must submit “Nil” VAT returns for the whole period for which your company has been dormant.
Making your company dormant with Companies House
A company is considered to be dormant by Companies House if it has no significant transactions within the current financial year. A company can still be dormant and have some transactions, but only if these are filing fees paid to Companies House, late filing penalties or money paid for shares at the time of company incorporation.
You need not immediately inform Companies House of your company being dormant. You need do this only when you next file your company accounts. It is important to note that you must still file full accounts up to the point when your company became dormant.
Do I have any obligations while my company is dormant?
Yes: Once your company is registered as dormant you must still:
- File accounts with Companies House each year. The accounting requirements for dormant companies are simplified, reducing the overhead administrative cost during the period of dormancy.
- File a confirmation statement.
- Inform Companies House of certain changes, including if a director or company secretary is appointed or terminated, or the company’s registered office address changes.
- File “Nil” – i.e. zero value – VAT returns with HMRC.
In some cases one may apply for an exemption from filing annual accounts with Companies House, for example if the company is a subsidiary. To gain this exemption, certain documents must be provided to Companies House by the parent company, including a written notice of agreement by the subsidiary’s members, a statement of guarantee from the parent company (Form AA06) and a copy of the parent company’s consolidated accounts.
Can I trade or otherwise make or receive payments if my company is dormant?
No: A company cannot trade at all while it is registered as dormant. This means that it may not buy or sell services, purchase or sell assets or property, employ members of staff, pay staff or directors, make investments, receive income from investments or pay dividends, bank fees or professional fees. If a company is found to be undertaking any such transactions then it will no longer be classed as dormant and, as a result, it must revert to meeting its normal filing obligations as an active company.
As explained above, the only type of transactions that a dormant company may legally undertake are:
- payments for shares from initial shareholders.
- payment of fees to Companies House when filing a confirmation statement or when changing the name of the company.
- payment of late filing penalties to HMRC.
Is a company exempt from accounts audits while dormant?
In accordance with the Companies Act 2006, a company may be exempt from audits of their accounts during a financial year if:
- it has been dormant since its formation or:
- it has been dormant since the end of the previous financial year and
- It qualifies for preparing accounts using the small companies regime.
- It is not required to prepare group accounts for that year.
- It is not an authorised insurance company, a banking company, an e-money issuer, a MiFID investment firm or UCITS management company, a person who carries on insurance market activity or a traded company.
Note, however, that you must still have your accounts audited if this is requested during the financial year by shareholders who own at least 10% of the shares in the company (either by number or value).
How do I file dormant accounts with Companies House?
Dormant accounts can be filed online using the “File your company’s annual accounts with Companies House” service. With a dormant company you are not required to submit a profit and loss account or directors’ report to Companies House. You will need, however, to provide:
- a balance sheet with the words “The company was dormant throughout the accounting period” above the director’s signature and printed name.
- the previous year’s figures for comparison, even if there are no items of income or expenditure for the current year.
If your company is limited by shares and has never traded, or where the only transaction was the issue of subscriber shares, you can use the simplified procedure by filing Form AA02 – Dormant company accounts. This can also be done by Uniwide Formations on your behalf.
The deadline for submitting dormant accounts is the same as for your normal accounts. Late filing fees similarly apply if you miss the deadline for submitting your dormant accounts.
Making your company dormant confers advantages in terms of administrative requirements. Note, however, that directors of a dormant company must still fulfil legal obligations both to HMRC and to Companies House. It is important to understand these in the context of your business. At Uniwide Formations we will take the time to explain the advantages and disadvantages of making your company dormant, given your exact circumstances. Where appropriate, we can explain any other options available to you. Once you have decided upon your course of action we can then complete the process of making your company dormant on your behalf and explain your ongoing obligations to HMRC and Companies House, your eligibility for exemptions and any other important considerations of which you must be aware.
Uniwide Formations specialise in registering limited companies and LLPs and offer wide ranging related services and advice, not least on Dormant Company Accounts.