As a UK business owner, if you own a dormant company, it’s crucial that you are aware about the legal obligations that come with owning such a business.
Having a dormant company status comes with a lot of significant benefits as long as you are taking the correct steps to maintain compliance with financial and tax regulations.
In this guide, we will walk you through everything you need to know about having a dormant company, how to declare your company dormant and the legal obligations attached to it.
What is a Dormant Company?
There are two types of dormant companies; Dormant for corporation Tax and Dormant for Companies house.
Dormant for corporation Tax
According to HMRC, a company is considered dormant for corporation tax if:
- It is no longer trading and has no other income
- It is a newly formed limited company that hasn’t begun trading
- It is an unincorporated association or club owing less than £100 Corporation Tax
- It is a flat management company
Such companies do not have to file Corporation Tax or pay Company Tax Returns. They only have to file their Annual Accounts and Confirmation statement.
Dormant Company for Companies House
Companies’ house deems a company dormant if it’s registered with companies’ house and has “no significant transactions” during its financial year.
A significant transaction is any transaction that should be entered into the company’s accounting records. A dormant company’s transactions should be limited to:
- Filing fees paid to Companies House
- Penalties and late filings for accounts
- Money paid for shares when the company was incorporated
- Filing annual returns
Even if your limited company is dormant, you are still legally required to file your annual confirmation statement and accounts.
However, if your company is both dormant and qualifies as ‘small’, you can file simplified ‘dormant accounts’ and are exempt from including an auditor’s report. Always check the specific requirements for small, dormant companies to ensure your filings are correct.
Why Would a Business Choose Dormant Status?
Choosing a dormant status is more about strategic decisions rather than neglecting your company.
It is not uncommon for business owners to opt for dormancy, and there are several reasons for it such as:
- Protecting a business Name: You may register your company to protect a brand name or trade mark, preventing others from registering it, without the active cost of trading.
- Temporary Pause in operations: If there is an economic downturn in business, making the company dormant could allow you to take a break, and plan a new business strategy.
- Subsidiary Companies or Holding structure: A company may be dormant because it is part of a larger group structure and is used to hold shares or is set up for future projects.
- Holding Assets or Intellectual Property: Making a company dormant to own assets like property, patents and valuable equipment can be done for security and strategic purposes.
- Tax Efficiency and Administrative Simplicity: If you want to significantly reduce your accounting fees and administrative burdens, while retaining the company’s legal structure, Dormancy is the best option.
- Preserving a Company’s History: Dormancy status can help to maintain a company with long trading history and established credit rating, which can be used for securing future financing.
- Settling an Estate or Legal Matters: Dormancy status can also be used to formally pause activity while resolving inheritance, ownership and other legal issues related to the company.
What are Dormant Company Obligations in the UK ?
A dormant company has reduced reporting requirements but it is still not free of all obligations. Having dormant status means you have to abide by these regulatory requirements in order to stay compliant and receive the benefits of the dormancy status.
You must continue to file Annual Dormant Accounts with Companies House, which are much simpler than annual accounts. The Annual Confirmation Statement (CS01) must also be filed and paid for on time each year.
All filings have strict deadlines set by HMRC that need to be followed in order to avoid late filing penalties, prosecutions, and eventually, your company being struck off the register.
If your company is VAT registered and you plan to restart trading in the future, you must file empty VAT returns to HMRC. However, for companies who do not intend to trade again, you must deregister for VAT within 30 days of your company being dormant.
Who to notify if your company is dormant?
If your company has stopped trading and is not receiving any revenue, you have to inform HMRC for corporation tax purposes and also to avoid CT61 reminders and penalties.
Once you have notified HMRC, you don’t need to file Company Tax Returns and Corporation Tax. If you work with an accountant, they can inform HMRC on your behalf or you can do it online yourself.
If HMRC thinks your company is dormant, they will send you a letter telling you that they have decided to treat your company as dormant. They will also mention that you don’t have to file your Company Tax Return and Corporation Tax.
Unlike HMRC, you don’t have to notify Companies House about your dormant status. They are automatically informed when you submit your annual accounts, labeled as “Dormant Accounts”.
Difference Between a Dormant, Non-Trading, and a Closed Company
Understanding the distinction between these three statuses is crucial for compliance and strategic planning.
- A non-trading company is active on the register and may have some financial transactions such as legal fees and residual invoices. It is still required to file full annual accounts and Company Tax Returns. A non-trading company is not considered a dormant company as long as there are some financial transactions.
- A dormant company legally exists on the Companies House register. It has no significant transactions in its financial 12-month period and must file annual confirmation statements and dormant accounts. Such companies can be reactivated easily. If a company is dormant, it is also automatically also non-trading.
- Closing a company means striking it off and dissolving it permanently. A closed company no longer exists as a legal entity, cannot trade and its assets are forfeited. This process is irreversible and extremely complex and costly if you want to apply for restoration.
How to Make a Company Dormant
The process of making your company dormant is very straightforward, but it must be done correctly to ensure compliance. These are the steps you need to follow:
1: Stop Trading: Cease all business transactions.
2: Notify HMRC: Inform HMRC that the company is dormant for Corporation Tax to stop receiving CT61 notices.
3: File Dormant Accounts: Prepare and file your next annual accounts with Companies House, clearly marking them as dormant.
4: Continue Filings: Keep up with your annual confirmation statement filings.
It is highly recommended that you use professional guidance during this process to avoid any costly errors that could void your dormant status.
Benefits of Using an Accountant for a Dormant Company
Handling a dormant company by yourself is a false economy. An accountant provides value that outweighs the cost, mitigating risk of filing everything yourself and ensures peace of mind. Here’s how:
- Saves Time & Stress: We will handle all paperwork and deadlines, giving you peace of mind.
- Avoids Penalties: We ensure accurate, on-time filings to prevent fines from Companies House and HMRC.
- Expert Guidance: We advise on the best strategy for your situation: dormancy, non-trading or closure.
- Safe Reactivation: We provide seamless support to restart trading compliantly when you’re ready.
- Status Protection: We ensure minor transactions don’t accidentally void your dormant status.
- Proactive Monitoring: We track regulatory changes and deadlines so you don’t have to.
FAQs
Do dormant companies pay tax?
No. Dormant companies do not pay Corporation Tax, but you must inform HMRC.
Do I still need to file accounts?
Yes. You must file simplified dormant accounts with Companies House annually.
How long can a company stay dormant?
Indefinitely, as long as you continue to file annual returns and accounts.
Can a dormant company own assets?
Yes, but income from those assets may affect its dormant status.
Do I need to file a confirmation statement?
Yes, this annual requirement continues unchanged.
Can a dormant company have a bank account?
Not recommended. Any bank charges or interest could void its dormant status.
What are dormant accounts?
Simplified financial statements showing no significant transactions.
Can I reactivate a dormant company?
Yes, simply by restarting trading and notifying HMRC.
Conclusion
Maintaining compliance for a dormant company is a legal requirement, not an optional extra. While it reduces the administrative load, it doesn’t eliminate it entirely.
Getting it wrong can lead to penalties and complications that undermine the very reason you chose dormancy.
As accountants, we specialise in helping small business owners manage their company status efficiently. Whether you’re considering putting your company into dormancy—or you already have one and want to make sure everything is handled correctly—get in touch today for expert accounting support.
Let us handle the filings so you can have complete peace of mind.
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