What is a dormant company?

Dormant in the literal sense means to be inactive. When we say a company is dormant, therefore, we mean such a company is inactive for a period of time, i.e., the company or business is not performing any business transaction or trading in this period. Such transactions include buying or selling goods and services, earning interest on shares, employing people or someone, business or company advertisement, and property renting.

What does company dormancy mean to HMRC?

The HMRC considers your limited company dormant for corporation tax if

• It’s a newly incorporated company that has not started trading,
• It is a flat or property management company,
• A company that has started trading but stopped at some point and has not made any income, or
• It is an unincorporated club or association with less than £100 debt on corporation tax payment.

Once HMRC determines you are one of the above-mentioned, they will send you a letter to inform you of their decision to treat your company as a dormant company. The good news is if you file to inform HMRC of the dormant state of your company, you will be exempted from paying corporation tax for that period.

If you are registered for VAT, you must deregister within 30 days of declaring your company dormant and if you have employed people with no plan to resume business within the tax year, you must close out your PAYE scheme. Filing of annual account and confirmatory statement or dormant account however depends on whether Companies House considers your company dormant or not.

What does company dormancy mean to Companies House?

The Companies House considers your company dormant if there has been no significant transaction conducted during the financial year – emphasis on “significant”. Companies House however do not consider filing fees, late filing penalty fees, and incorporation shares payment as part of such transactions. This means that any other transaction apart from these is considered significant, no matter how small the payment is.

As a limited company registered with the Companies House, however, you must keep filing annual accounts and confirmatory statements. However, if your company qualifies as small and is dormant according to Companies House, you can file dormant accounts and you do not need to include an auditor’s report while filing.

Can a company make or receive payments when dormant?

The only transactions that can be made during the company dormancy period and that would not be considered “significant” are as mentioned above, i.e., confirmation statements and annual accounts filing fees, late filing penalty fees, and incorporation shares payment to pioneering shareholders.

How to activate a dormant company?

As a limited company registered with Companies House, you do not need to inform the Companies House that your company has become active. This is because you have been filing annual accounts and confirmation statements even during the dormant period. So, once you file the annual account and  confirmation statement for the financial year in which your company becomes active, it would be evident in your records and Companies House will take note. Although, this must be done within 9 months of reactivation.

However, you must inform the HMRC of your recommencement of business within 3 months of being active. To do this, you will need to re register for corporation tax for which you will need your Government Gateway user ID and password. If you don’t already have it (if you are a new company starting a business after a period of dormancy), you can create one on the HMRC portal.

To put more succinctly:

• Inform HMRC that your company has become active by reregistering for corporation tax. For this, you will need the following information –
  • company name and number
  • company number
  • date of company reactivation
  • the accounting period for Corporation Tax
  • company registered address
  • Standard Industrial Classification (SIC) code which describes your company’s type of business
  • accounting reference date (ARD) – the date up to which your company accounts will be prepared
     
• If you have not been filing annual accounts and confirmation statements during the period of dormancy, you must do that and pay the late filing penalty fees within 9 months of your company’s year-end. The information required include –
  • Your company’s name
  • The registered office address or Single Alternative Inspection Location (SAIL) address
  • Details of company directors, secretary (not compulsory), shareholders, and persons with significant control (PSCs).
  • The location of statutory company records
  • Information regarding issued shares
  • Standard Industrial Classification (SIC) code which describes your company’s type of business
     
• Pay any due corporation tax within 9 months and 1 day of your company’s year-end and also statutory tax returns or accounts within 12 months of your company’s year-end to HMRC.

What are the banking requirements for a dormant company?

It is important to keep a different company account from a personal one because any transaction on the account will be regarded as significant and thus nullifies the dormant status of the company. However, it is wise to close any company account if it is a new company, especially if the dormant period is going to be an extended one.

Therefore, if your company has been inactive for a period of time, have no fear. You can keep it that way and continue doing the needful to HMRC and Companies House to avoid penalties if you are not ready to reactivate. Otherwise, take the necessary steps to reactivate and inform the government agencies as to when due to avoid being penalised.