A dormant company is one of the simplest business structures in the UK, yet it’s also one of the most misunderstood. Whether you’re a new director, a property investor, or someone setting up a company for future use, understanding what “dormant” really means can save you time, money, and a lot of hassle with HMRC and Companies House.
In this guide, we break down the definition, the rules, and the filing requirements in the simplest terms, so you know exactly when a company is considered dormant and how to keep it compliant.
What is a Dormant Company?
A company is classified as dormant when it is not carrying out any trading activity or receiving any income in a financial year, or since it was incorporated. Bear in mind that dormant Companies must be registered with Companies House.
HMRC takes dormant companies inactive for Corporation Tax. A company can be dormant right after incorporation, or it can be dormant after doing its business activities for some time.
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Dormant, According to HMRC for Corporation Tax
HMRC define a company as dormant for corporation tax if:
- A company has ceased its trading activities and does not earn income from any other source (e.g. investment)
- It is a new company that hasn’t started trading
- It is an unincorporated association/club that owes corporation tax below £100
- Is a flat management company
HMRC will inform you via a letter that they have started treating your company or association as dormant. Thus, you don’t need to pay corporation tax or file company tax returns.
Dormant, According to Companies House
According to Companies House, if your company has no significant transactions in a financial year, it will be dormant. These transactions do not include:
- Penalties for late filings of accounts
- Filing fees paid to Companies House
- Money paid for shares at the time of incorporation
You are not required to inform Companies House that you have restarted trading, as the next set of non-dormant accounts you file will show your active status.
Even if your company is dormant as per Companies House or for corporation tax, you are still required to file your confirmation statement and annual accounts. However, if you are a small company and dormant according to Companies House, you can file dormant accounts without including the auditor’s report with them.
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Reasons to Make Your Company Dormant
You may dormant your company for the following reasons:
- To protect a company’s name before starting a business
- To stop doing business for some time
- To restructure a business that is already active
- To hold a freehold property to avoid a change in the Land Registry entry each time
Can My Dormant Company Trade?
The quick answer is no. It can’t perform any of the business activities or earn any income, including:
- doing investments and receiving dividend payments
- issuing dividends to the shareholders of the company
- paying any fees from the business bank account
- trading goods and services
- leasing or buying property
- earning interest or paying bank charges
- employing staff
- paying directors’ salaries
If any of the above-mentioned activities are performed by a dormant company, it will lose its dormancy status. For this reason, it is required to prepare annual accounts.
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The Bottom Line
So there you have a quick guide on what is a dormant company. If you want to make your company dormant, you just have to inform HMRC about your company’s dormancy status right after three weeks of your company’s incorporation.
Upon changing your company status from dormant to active, here again, you need to inform HMRC. If your company was registered for corporation tax previously before dormancy, you can change its status via the company’s government gateway.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.