Though present and searchable in the Register of Companies at the Companies House, if your business doesn’t perform what’s deemed to be significant transactions throughout the financial year, it’s considered a dormant company due to inactivity.
There are some transactions that don’t contribute to making a company dormant:
- Filing fees & late payment penalties paid to the Companies House;
- Re-registration of company and submission of Confirmation Statement;
- Money paid for shares when your company was first incorporated.
Even if you choose to go dormant, you’re still legally required to file company information if you’ve previously registered with the Companies House.
A dormant company is “…a company that’s not active, not liable for Corporation Tax, or not within the charge to Corporation Tax.”
HMRC consider the following examples to be ‘dormant companies’:
- A new company that hasn’t begun trading yet;
- An ‘off-the-shelf’ company held by a company formation agent ready to be sold on;
- An existing company that has traded in the past, but is not currently trading;
- A company that will never trade because it has been formed solely to hold an asset such as property.
Should I Make My Company Dormant?
It’s one thing to know how to make a company dormant in the UK but before you dive in, ask yourself whether this route is right for you. What impact would dormancy have versus not carrying on at all? While there are many reasons you would want to take a break from running your company, it also pays to know how making your company dormant can work to your advantage.
Save costs on administration and maintenance
Making a company dormant means that there’s no earnings as your operations are no longer running as they were. You will be eligible to file “dormant accounts” if Companies House certified the dormancy and you also qualify as a “small company”. In this way, you could save costs on administration and maintenance as you don’t need to include an auditor’s report with your filing.
A company is considered “small” if it fulfils any two of the following:
- 50 employees or fewer
- A turnover of £10.2 million or less
- £5.1 million or less on the balance sheet
Payment of Corporation Tax
When you make a company dormant, the first thing you’re expected to do is inform HM Revenue and Customs (HMRC). Unless you receive a note to deliver a Company Tax Return you don’t need to pay Corporation Tax or further Company Tax Returns, but you will need to file annual accounts.
Take time off
If your business has stopped operating and you’ve chosen to register your company as dormant, you may find yourself presented with any of the following opportunities:
- Retire without worrying about company matters;
- Pass on the company to a chosen heir;
- Resume working as a full-time employee;
- Take time off to care for a loved one;
- Recuperate from an illness;
- Respond to sudden (temporary) need to move abroad.
How Long Can My Company Stay Dormant?
There’s no time limit on how long you can keep your company dormant, meaning as long as it works for you - and you’re legally compliant - you get to set the time frame. Once you learn the steps of how to make a company dormant in the UK, you’ll realise it may be a viable option to lower costs if you choose to resume operations in the future.
In January 2007, Frank started his company Designz4All. After maintaining business operations for 15 years, he fell seriously ill in 2022 and required a considerable amount of time to recuperate. One of his main concerns is being able to resume running the company effectively once he’s fully recovered or whether he should pass on the proverbial baton and workload to his son. He chose to put a hold on his business, giving himself time to decide whether or not he should cease his company operations entirely. In this case, it makes sense to register his company as dormant until he’s sure of the route he wants to take in the future.
Follow These Steps To Make a Company Dormant
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Inform HMRC of dormancy
Dormant company accounts will not be seeing any incoming revenue as profit-driven activity would have stopped, which may mean a change in your tax obligations or status. If you’ve stopped operating and choose to make a company dormant, you need to let HMRC know. You can do this online (if you’ve previously filed returns) and entails you filing a Company Tax Return with relevant details. If you have never received a notice to file a Company Tax Return, you can simply inform HMRC over the phone or through email.
Pay off bills
All bills and accounts for a dormant company (office space rental, equipment hire, insurance, web services, etc.) need to be settled before any existing agreements are terminated. This includes all presently outstanding payments as well as those which are anticipated in the future.
Cancel existing VAT and PAYE
If you register a company as dormant, you’ll also need to deregister your value added tax (VAT) within 30 days. Submit ‘NIL’ VAT returns (unless you plan to begin trading again soon) and handle your employees’ payrolls and close your PAYE.
Dormant Company Taxonomy
When making a company dormant, your tax obligations and legalities around business transactions will be affected. Here are some key things to consider ahead of time to ensure you are confidently prepared and have all the paperwork sorted.
Paying taxes while being a dormant company
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A dormant company is not liable to pay taxes until it becomes active — i.e. when you resume buying or selling goods, earning interest, managing investments or providing services that are bringing in an income. However, if a company was previously trading, it must pay any outstanding tax liabilities to HMRC from that period of activity. A company will be exempt from filing annual corporation tax returns when it’s considered dormant.
For taxation purposes, any of the below categorise a company to be considered dormant:
- New LC, not actively trading yet;
- Flat management company;
- Charity or unincorporated association.
Being a shareholder or guarantor for another company when dormant
You can set up a dormant company in the UK for the sole purpose of acting as another’s company shareholder guarantor (if it’s set up as limited by shares or limited by guarantee). In the event the other company is declared insolvent, the dormant company agrees to contribute toward any associated debts. Accounts for a dormant company should not reflect any significant transactions from guarantors or corporate shareholders if it is to maintain its dormancy status.
Shares and guarantee payments are not considered significant accounting transactions as these are fixed sums of capital which are in place from incorporation. Here’s a recap of Director’s Duties in the UK if you’d like to brush up on the legal need-to-knows.
If I make my company dormant, can I still make and receive payments?
Dormant company accounts can only put through the following business bank transactions:
- Share payments (from the now dormany company’s first shareholders);
- Fees to due to Companies House if you choose to change the company name;
- Fees and penalties due to HMRC.
Unless you’re willing to jeopardise your dormant company status, don’t make or receive any other type of payments types. They’d be considered significant transactions which fall outside of dormancy.
Dormant company accounts
Keep things simple. One way to do that is to avoid opening any new business bank accounts and close those existing if your company was previously trading. You’ll not only be able to save or avoid bank fees or service charges but also avoid any inadvertent or unexpected payments that may have an impact on changing the status of your dormant company. If incidental payments do arise, they should be made from a personal banking account.
How Do I Make My Dormant UK Company Active Again?
HMRC must be contacted within 3 months of you receiving any form of income or continuing any business activity from a once dormant company. If you make a company dormant that was previously trading here’s what you’ll need to do to get up and running again:
- Corporation Tax Registration: You need to register to let HMRC know that your company is trading again.
- Companies House: You need to send your accounts for a dormant company, from nine months of re-opening.
- Corporation Tax: You will need to pay any tax due within nine months of re-opening.
- Company Tax Return: You need to send this to HMRC within 12 months of your company’s year-end.
If your dormant company in the UK has never traded before, the first step to making it active again is to register for Corporation Tax. This is an online process where you create a Government Gateway account. Keep the following information handy when you register:
- Company details: Registered name and trading number;
- Dates: Of first trading activity (to inform date of company accounting period for Corporation Tax);
- Address: Physical location where principal business activities are carried out;
- Standard Industrial Classification (SIC) code: This indicates the category and nature of your main business activities;
- Accounting reference date (ARD): This denotes the date up to which company accounts need to be prepared.
With all this information in hand, HMRC will work out what accounting period for Corporation Tax applies to your business, and add this to their online records. This period of time is from the day your company starts trading until the ARD of your business financial accounts.
The registered address of your business is where the details about the Corporation Tax and Company Tax filing instructions are sent. Remember to make this easier in the long run by keeping your accounting and business records accurate and up to date, so you can work out the tax liabilities with confidence.
To round off
Registering your company as dormant is a effective way to buy yourself some time while you decide what the future holds. If you need some more advice, or someone to take the weight of your financial admin, we’re always at hand.