When is a company or an association considered as being ‘dormant’ in UK?
To be ‘dormant’, it must not be ‘trading’ (doing business) and must not have any other sources of income (e.g. investments).
Note: Dormant companies must still register with Companies House.
But, unlike a trading company, a dormant company would not be carrying out any day-to-day business activities.
Because it does not receive any form of income, HM Revenue and Customs would consider it as ‘inactive’ for Corporation Tax purposes.
A company can be in dormant status from the original date of its incorporation. It can also become dormant after operating in a period of business activity. There are several valid reasons for making companies and associations dormant, such as:
- To reserve the name of a company during the preparation period prior to the launch of the business.
- Due to the restructuring of a business or association that was active on a previous occasion.
- If the company owner needs to take an extended period of time off. It could be through illness, for maternity leave, travel, or for a sabbatical.
A company can remain in a dormant state for any length of time. But, you must inform the local corporation tax office without delay. You must also maintain several statutory obligations for Companies House, including:
- Filing annual returns and dormant accounts.
- Keeping accounting records up-to-date and available for public inspection.
- Reporting any changes to the registered company details.
Dormant for Corporation Tax
As a rule, a company would be dormant for Corporation Tax purposes if any of these circumstances apply:
- You have set up and run a flat management company (often called a ‘Right to Manage‘).
- It’s a new limited company and has yet to start trading (e.g. you started trading after your company set up).
- Your company ceased trading and has no other source of income (including investments).
- It is an unincorporated association or club with an annual Corporation Tax liability not expected to exceed £100. Read more on when HMRC treats clubs and unincorporated organisations as dormant.
Note: Be aware of what counts as dormant for Corporation Tax. Trading can include advertising, buying, selling, renting property, employing someone, or receiving interest.
When HMRC Treats a Company as Dormant
If HM Revenue and Customs thinks your company is dormant they may send you a letter that informs you:
- HMRC decided to treat the company or association as ‘inactive’ or dormant.
- There is no need to pay Corporation Tax or to file Company Tax Returns.
If You Treat Your Company as Dormant
You can inform HMRC when you think your company is dormant for Corporation Tax. It must have stopped trading and have no other sources of income.
Never had a ‘Notice to Deliver a Company Tax Return’
You can tell HMRC that your company is dormant over the phone or by postal methods if you did not get a ‘notice to deliver a Company Tax Return’.
Filed a Company Tax Return (or had a ‘notice to deliver’)
You would still need to file your Company Tax Return online. Doing so shows HM Revenue and Customs that the company is dormant. HMRC will not send another ‘notice’ once they make the company dormant.
Once you tell HMRC the company is dormant there is no need to pay Corporation Tax or file another Company Tax Return.
But, you do need to file annual accounts and file a confirmation statement (annual return). The procedure would depend on whether the company is dormant for Companies House (see below).
Note: A different section explains the process for restarting a non-trading or dormant company in United Kingdom.
Deregistering for VAT
You will need to ‘deregister’ or cancel VAT registration within 30 days of the company becoming dormant if it is registered for VAT. Send ‘nil’ (empty) VAT returns during the period that the company is dormant if you intend to restart trading at a later date.
Closing a PAYE System
If the company employs people you should close the PAYE scheme. You should stop being an employer if you do not have plans to restart trading during the tax year.
Dormant Company According to Companies House
Companies House would call the company ‘dormant’ if there were no ‘significant’ transactions during the financial year. Note that significant transactions do not include:
- Filing fees paid to Companies House.
- Money paid for shares during the time that the company was incorporated.
- Penalties for the late filing of accounts.
There would be no need to inform Companies House if you decide to restart trading. They would see the company is no longer dormant from the next set of non-dormant accounts that you file.
Dormant for Companies House
You will still need to file your confirmation statement (annual return) and your annual accounts with Companies House. These are both statutory obligations even if the limited company is:
- Treated as dormant for Corporation Tax by HMRC.
- Considered as dormant according to Companies House.
The company can be dormant according to Companies House and qualify as a small or ‘micro-entity‘. In this case, when you prepare annual accounts for a private limited company, you can:
- File a set of ‘dormant accounts’ instead.
- Avoid having to include an auditor’s report with the accounts.
Note: Check what you should include in the accounts for Companies House for micro-entities, small and dormant companies.