A dormant company is one that has been incorporated by Companies House but is not actively trading and has no income. Companies become dormant for differing reasons. In some cases, the company may be incorporated but remain dormant for some time until it is ready to start trading. In other cases, it may be that the company was trading but then became dormant, perhaps due to a planned restructuring. Although a dormant company may not be trading, there are certain filing requirements that must still be met by law. In this article we will explain everything that you need to know about dormant companies in the UK, including what is meant by a ‘‘dormant company‘‘ from the perspective of HMRC and Companies House, how to notify Companies House of a dormant company, the filing and reporting requirements and how to make a dormant company active.
What is a dormant company?
A dormant company is one that is not currently doing business (i.e. is not trading) and has no other forms of income (e.g. income from investments). The term ‘‘dormant company‘’ has a slightly different meaning from the perspectives of HMRC and Companies House.
From HMRC’s perspective, a company may qualify as dormant if it is:
- Currently not trading and has no other income.
- A new limited company that has yet to start trading.
- An unincorporated association or club that owes HMRC less than £100 in Corporation Tax.
- A flat management company.
Companies House view a company as dormant if it has had no ‘‘significant’’ transactions within the financial year. This does not include the payment of filing fees to Companies House, late filing penalties or money for shares when the company was incorporated.
To remain dormant, it is important to ensure that the company continues not to trade or receive any form of income. Any activity such as buying and selling goods, employing staff, leasing property, paying salaries and dividends, receiving dividends from investments or even receiving bank interest may mean that the company is no longer dormant. In that case the directors must prepare full accounts each year and meet the normal filing requirements of a registered company.
How do I make a company dormant with HMRC?
Depending on the circumstances, you may not need to inform HMRC that your company is dormant. Based on the information that they hold about your company they may write to you automatically to tell you that they believe it to be dormant. In this case the letter will inform you that they are treating your company or association as dormant and that you do not need to pay Corporation Tax or file Company Tax Returns.
Alternatively, you can tell HMRC that your company is dormant online through the HMRC website. To do this you will need to provide your company name, your 10-digit company UTR number and the date when your company stopped trading.
Once HMRC knows that your limited company is dormant you will not need to pay Corporation Tax or file another Company Tax Return. The only exception to this is if you receive a notice to file a Company Tax Return from HMRC because your company has been trading. In that case you will need to complete the Company Tax Return and file this online for the period before your company became dormant. It is important to ensure that any bills owed by the company are paid before registering it as dormant, including wages, salaries, dividends and any payments due to suppliers. Any money owing to the business should also be collected.
HMRC will normally write to the company’s registered office address within 15 days, confirming that it is dormant. From this point you will not need to deal with HMRC unless your company begins to trade again.
How do I make a company dormant with Companies House?
There is no need to let Companies House know immediately that your company has become dormant.
To let Companies House know that your company is dormant you will need to file your annual confirmation statement and prepare and file your annual accounts with Companies House.
If your company has never traded then you can file dormant company accounts, for which the filing fee is free.
What should I do with my dormant company bank account?
As outlined above, if you receive any form of income then your company may not meet the criteria of a dormant entity. This is why it is preferable, where possible, to close the company bank account to avoid the possibility of money being paid to or from the business while it is in a dormant state. Even a small bank fee being paid from the bank or an interest payment received may mean that the company is no longer qualified as being dormant. Certain payments, however, are exempt from the assessment of whether a company is dormant (see the section below; ‘‘Which payments are exempt when assessing dormant company status?’’).
If a bank account is yet to be opened for a newly registered company then it may be better not to set up an account until the company is about to begin trading.
Where possible, any costs associated with a dormant company should be paid from a personal bank account.
Which payments are exempt when assessing dormant company status?
Some payments by a dormant company are permitted, including:
- Payments related to the original formation of share capital.
- Confirmation statement fees.
- Change of name filing fees.
- Late payment penalties.
The rules are extremely strict in this area. Any transaction that does not fit under one of the four types allowed, listed above, will be considered a ‘‘significant accounting transaction’’, no matter how small, and may mean that the company can no longer be considered dormant.
What are the Companies House filing requirements for dormant companies?
It is important for all directors of dormant companies to understand that, although the company is not currently active, annual accounts and confirmation statements must still be filed every year. As mentioned above, if your company has never traded then you can file dormant company accounts. Alternatively, if you have a small company that has traded in the past but has since become dormant then, in this situation, Companies House will also allow you to file dormant accounts. A small company is one that meets any two – or all three – of the following criteria:
- A turnover of £10.2 million or less.
- £5.1 million or less on its balance sheet.
- 50 employees or fewer.
Furthermore, dormant companies that qualify as ‘‘small’’ are not audited and do not need to provide an auditor’s report.
It is important to ensure that your accounts are submitted by the appropriate deadline. This will be 21 months from the date of incorporation for your first set of accounts or 9 months from the end of the financial year (accounting reference date) for subsequent years.
Dormant company accounts can be filed either online using form AA02 or by post.
HMRC and Companies House place strict rules and requirements on dormant companies in the UK. The main benefit of placing a limited company into a dormant state is that it reduces significantly the administration and filing requirements, even though it does not eliminate them entirely. This is why it is so important for limited company directors to be aware of the dormant company filing rules, even if they are not actively involved in the business. Where possible, it is advisable to put in place reminders for any dormant company filing deadlines, including for the annual confirmation statement and dormant company accounts. This will provide peace of mind regarding ongoing compliance and avoid potential penalties for breaches of the dormant company filing requirements.