Many UK business owners find themselves with companies that are not currently trading but remain registered at Companies House. These are known as dormant companies. Understanding what it means for a company to be dormant, the legal obligations involved, and when it makes sense to keep a company on the register can save you time, money, and administrative hassle.
| Aspect | Dormant Company | Active Company |
|---|---|---|
| Trading Activity | No significant accounting transactions (except allowed fees) | Regular business transactions and trading |
| HMRC Filing | May file dormant company accounts and confirm no Corporation Tax due | Must file full accounts and Corporation Tax returns |
| Companies House Filing | Annual dormant accounts and confirmation statement | Full statutory accounts and confirmation statement |
| Costs | Lower accounting and filing costs | Higher due to active trading and compliance |
| Use Cases | Holding company, brand protection, future start-up | Ongoing business operations |
What Is a Dormant Company?
A dormant company is a limited company that has had no 'significant accounting transactions' during a financial year. According to Companies House and HMRC, this means the company has not traded or carried out business activities that affect its finances. The only permitted transactions while dormant are payments for shares taken by subscribers to the memorandum of association, fees paid to Companies House for filing annual documents, and penalties for late filing.
Companies often choose to keep a company dormant to protect a business name, hold an asset such as intellectual property, or prepare for future trading. It is important to note that being dormant does not exempt a company from all filing requirements or legal responsibilities.
How to Make a Company Dormant
To make a company dormant, you should stop all trading and business activities that generate accounting transactions. This means no sales, purchases, payments, or receipts, aside from those permitted by Companies House rules.
Once your company is dormant, you need to inform HMRC to avoid unnecessary Corporation Tax enquiries. Typically, you can do this by filing a 'nil' Corporation Tax return or notifying HMRC directly via your online account or by phone. If you do not notify HMRC, you may continue receiving tax returns and reminders.
Steps to Take When Making Your Company Dormant
- Cease all trading activities and stop any business transactions.
- Inform HMRC that your company is dormant by filing a final Corporation Tax return or contacting them.
- Prepare dormant company accounts for Companies House — these are simplified financial statements.
- File your confirmation statement (previously annual return) on time as normal.
- Continue to maintain a registered office and comply with statutory obligations.
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Filing Obligations for Dormant Companies
Even though dormant companies do not trade, they still have important filing responsibilities with both Companies House and HMRC. Meeting these requirements on time helps avoid penalties and keeps the company in good standing.
At Companies House, dormant companies must file annual dormant accounts. These accounts are much simpler than full accounts, reflecting the lack of financial transactions. You must also file a confirmation statement every year, confirming details such as directors, shareholders, and registered office address.
HMRC Filing Requirements
For HMRC, a dormant company typically does not need to file a Corporation Tax return if it has been dormant since incorporation or the last accounting period. However, if HMRC sends a notice to file a return, you must respond, either by filing a 'nil' return or informing them that the company has been dormant.
Failing to respond can result in penalties and unnecessary enquiries. It is good practice to keep HMRC informed about the company’s dormant status to avoid confusion.
When to Keep a Company Dormant vs Dissolve
Deciding whether to keep a company dormant or dissolve it depends on your future plans and the costs involved. Dissolution removes the company from the Companies House register permanently, freeing you from filing obligations but means you cannot simply restart trading later.
Keeping a company dormant allows you to retain the company name, protect intellectual property, or prepare for future trading, but you must continue filing dormant accounts and confirmation statements.
Factors to Consider
- Future plans: If you expect to restart trading or use the company again, dormancy might be preferable.
- Costs: Dormant companies have lower accounting costs but still incur filing fees and possibly professional fees.
- Administration: Dissolving eliminates administrative burdens; dormant companies require ongoing compliance.
- Company name protection: Keeping a company dormant protects its name from being registered by others.
How to Dissolve a Dormant Company
If you decide that you no longer need your dormant company, you can apply to have it struck off the Companies House register. This process is known as voluntary dissolution. Before applying, ensure the company has no outstanding debts or liabilities, as these can prevent dissolution.
To dissolve a company, file form DS01 with Companies House and pay the associated fee. The company will be struck off the register after approximately three months if there are no objections. During this period, notices are placed in the Gazette to allow creditors or other parties to object.
Once dissolved, the company ceases to exist and cannot trade or hold property. You will also no longer need to file accounts or confirmation statements.
Key Takeaways
- A dormant company has had no significant accounting transactions during a financial year, with only limited permitted transactions allowed.
- Filing dormant accounts and confirmation statements at Companies House, and informing HMRC of dormant status, are essential compliance tasks.
- Keeping a company dormant can be useful for protecting a company name or preparing for future business but involves ongoing administrative duties and costs.
- Dissolving a company removes it permanently from the register, eliminating filing obligations but also any future use of that company.
- Always consider your long-term business goals and consult GOV.UK, HMRC, and Companies House guidance to ensure compliance.
Can a dormant company have a business bank account?
Yes, a dormant company can hold a business bank account. However, since it does not trade, the account should not be used for business transactions aside from permitted fees such as Companies House filing costs.
Do I need to file Corporation Tax returns for a dormant company?
Typically, HMRC does not require Corporation Tax returns from dormant companies if they have been dormant from incorporation or the last accounting period. However, if HMRC requests a return, you must file a 'nil' return or notify them that the company is dormant.
What are the penalties for failing to file dormant accounts on time?
Late filing of dormant accounts can lead to automatic penalties starting at £150 for private limited companies, increasing with the length of the delay. Persistent failure to file can result in legal action and even compulsory strike-off.
Official Sources
* GOV.UK: Set up a business · * HMRC: Income Tax rates · * HMRC: Corporation Tax · * HMRC: VAT registration