Dormant companies

There are various reasons why a company may be dormant - but what are the tax implications, and how can a dormant company be made active again?

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What is a dormant company?

A company is considered to be 'dormant' if it is not trading and does not receive any form of income. It will still be registered at Companies House and will be required to file annual returns. Reasons why a company may be dormant include:

  • reservation of company name prior to launching a business
  • restructuring of a formerly active business
  • if the owner needs to take an extended period of leave
  • it is acting as a holding company for intellectual property or other assets

How can a company be made dormant?

New company

To set up a dormant company from scratch is relatively straightforward. Following company formation, HMRC needs to be informed of the dormant status.

Previously active companies

In order to make an existing active company dormant, all bills must be paid and contracts cancelled. Any agreements with customers should be terminated and amounts due or owing reconciled. Outstanding taxes and VAT must be paid, along with any final wages due, and the correct procedures need to be taken regarding dismissal or redundancy of employees (including closure of PAYE schemes). Business bank accounts should also be closed.

HMRC can then be informed that the company is dormant for Corporation Tax. A final tax return should be filed online. Companies which are registered for VAT must de-register within 30 days of becoming dormant.

What are the filing and tax requirements for dormant companies?

Annual accounts and confirmation statements must still be filed with Companies House every year. Companies which are dormant and also considered as 'small' can submit 'dormant accounts' instead and are not required to include an auditor's report with their accounts. For further information read Prepare annual accounts for a private limited company.

In order to remain dormant according to Companies House, no 'significant' transactions should have been made in the previous financial year. These exclude:

  • filing fees paid to Companies House
  • any penalties in respect of late filing of accounts
  • payment for shares when company was incorporated

How can a dormant company be made active?

A dormant company which starts trading again will immediately lose its dormant status and be considered active for purposes of Corporation Tax.

HMRC should be notified of the change in status within three months of a dormant company becoming active. Companies which have previously been active can change their status on their online HMRC account. Companies which have never traded will need to register for Corporation Tax.

What is the difference between dormant and non-trading companies?

Dormant companies are, by their very definition, also non-trading.

However non-trading companies are not always dormant. Companies that do not carry out business may still be involved in significant transactions (eg pre-trading expenditure) - if so, even if they are not trading at all, they will not be classed as dormant.

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