‘Dormant company’: meaning what?
A dormant company doesn’t do any business or have any money coming in or going out. It doesn’t pay corporation tax, but does still need to file annual accounts. And it risks losing its dormant status if it makes any transactions (although there are a couple of exceptions).
If you want to focus on another venture or take time out for personal reasons, making your company dormant is a relatively easy way to keep your options open. And for sole traders, registering a dormant company means you can protect a company name even if you aren’t quite ready to make the leap to a limited company.
Making an existing company dormant
If your company’s already up and running, to make it dormant you’ll need to:
- pay any bills or wages, and cancel any contracts the company has (so that’s things like rent, insurance, utilities and so on)
- make sure your customers have paid you any money they owe
- pay any VAT you owe if you’re VAT-registered (you might also want to cancel the company’s VAT registration)
- close down any company bank accounts – this will lower the risk of accidentally losing your dormant company status because of an interest payment (more on this later)
You’ll now need to let HMRC know you’re making your company dormant. They’ll send you a ‘Notice to deliver a company tax return’ for the time immediately before you made the company dormant. Send in the return and pay any tax you owe.
You don’t need to contact Companies House at this stage.
Forming a dormant company
This is exactly the same as forming a limited company. Around three weeks after you’ve incorporated it at Companies House, HMRC will write to you. Then you can let them know that your company’s dormant.
How long can you stay dormant?
As long as you want. Provided you stay on the right side of Companies House and HMRC, you can keep a company dormant indefinitely. A word of warning though – even something as small as earning a few pence of interest on a company bank account could mean you lose your dormant company status. So make sure you’re clear on what counts as a transaction.
Can a dormant company make any transactions at all?
Dormant companies aren’t allowed to carry out any ‘significant’ transactions. Companies House says there are three types of transaction which don’t count as significant:
- penalties for filing accounts late
- filing fees paid to Companies House – including fees for filing your confirmation statement, re-registering the company and changing its name
- money paid for shares when the company was incorporated.
Remember – anything else could mean you lose your dormant company status.
If my company’s dormant do I still have to file accounts?
Yep – all registered companies have to file annual accounts with Companies House, even if they aren’t trading. You need to do this within nine months of your company’s anniversary (so different companies will have different deadlines). Companies House will tell you when, and you can also sign up for email reminders.
The good news is that the accounts should be fairly straightforward as you won’t have any transactions to report. So you should really only need to file a balance sheet and notes. And the even better news is that you won’t have to pay the annual filing fee for a dormant company. But, if you miss your deadline you’ll still get a penalty and possibly a fine.
You can use WebFiling to do this online – you’ll find that some of the fields are already filled in, which should make things more straightforward. And you’ll know when Companies House receive and approve your accounts.
Don’t forget the confirmation statement
You’ll also still need to confirm that the information Companies House has about your company is right. You do this by filing a confirmation statement i.e. Company confirmation statement (which used to be called an annual return) each year, even if nothing’s changed. If you don’t, you could face a fine up to £5,000 and your company might be struck off.
You need to make sure this info is right:
- your registered office, directors, secretary and the address where you keep your records
- your statement of capital and shareholder information (if your company has shares)
- your SIC code (the number that shows what your company does – for dormant companies this is 99999)
- your register of ‘people with significant control’ (PSC) – you’ll need to include this the first time you file a confirmation statement.
The bad news is that you do still have to pay a fee for this: £13 to file online, and £40 for post (fill in form CSO1). Your confirmation statement is usually due a year after the date your company was incorporated, or the date you filed your last confirmation statement.
I want to start trading. What do I need to do?
You don’t need to contact Companies House – when you file your next set of accounts they’ll see that your company isn’t dormant anymore. But you do need to let HMRC know you’re up and running within three months of starting.
In a nutshell
Making an existing company dormant gives you the chance to take a break from your business. Just starting out? You can register a dormant company then carry on as a sole trader until you’re ready to move to a limited company. Dormant companies don’t pay corporation tax, but do still need to file annual accounts and confirmation statements. And you’ll need to make sure your company doesn’t make any ‘significant’ transactions – if it does, it could lose its dormant company status.