Dormant Company

Should you close your limited company, or make it dormant? Learn the difference along with steps for making a company dormant with this useful guide.

There could be instances in which your company no longer wishes to trade, but you do not want to close it completely and permanently, or you may for a company with no intention of trading, just using it for name protection. Under these circumstances, you may wish to keep the company as a “dormant company”.

What is a dormant company?

A dormant company is one considered to be inactive by Companies House, but remains listed on the public register as a company.

In order to be a dormant company, no significant transactions must have taken place within the company’s accounting period. Essentially, if you are not conducting any business and the company is not generating any income or paying expenses, it can be considered dormant. As there is no taxable profit, this means you do not have to pay any Corporation Tax, but you will still need to prepare a return even if nothing is payable. In addition, you as director will still need to prepare and file annual returns.

There can be many reasons why you would choose to make a company dormant:

  • Launching a business – Many business owners will register the relevant information with Companies House in order to ensure they get their desired business name and can protect it before they are in fact ready to trade. In this case, a shareholder would form a dormant limited company, and once they begin doing business, they must notify Companies House that it has become active within three months of the date they do in fact begin trading.
  • Re-launching a business – If you are undergoing significant rebranding and are effectively re-launching the business, you may wish to cease trading while you do this, without having to go through the hassle of closing a business and incorporating a new one.
  • Re-structuring a business – If your company is undergoing substantial changes, making your company dormant while this internal restructuring takes place can save you time when it comes to start trading again, and ensure that your company name and information remains protected and registered with Companies House.
  • Personal reasons – If you are the director of a company, you may have to take time away from trading due to personal reasons; this can be anything from maternity or parental leave to sick leave, bereavement leave, travel plans or other personal reasons. By making your company dormant, you can protect it and ensure everything remains on record for you to begin trading again when you are ready.

How to make a company dormant

If you decide to cease trading, you must officially change your company status from active to dormant with HMRC.

You can do this by notifying your local corporation tax office in writing of the change, and in this correspondence you must include the date that the company will or has already become dormant. Upon receipt of this information, HMRC will notify you that you will need to deliver a Company Tax Return (if your company was previously trading). You will need to complete and submit the corporation tax return for that accounting period after which you will need to cancel your VAT (if you are registered) and cease payroll operations. You must also settle all outstanding debts before you can declare a company dormant; this includes wages, dividends, and loan repayments. Similarly if you are owed any money, you should ensure suitable debt collection takes place before making a company dormant.

What can a dormant company do/not do?

A dormant company can remain on the Companies House register even if it is not trading.

Certain transactions can be allowed even if the company is dormant, such as the receipt of payment for debts, fees paid out for changes of company details, or the cost associated with filing an annual return (£13). A dormant company cannot actively trade and generate any profit without first alerting HMRC to the fact that it is now active.

How to restart a dormant company

There is no need to inform Companies House that you have recommenced trade; you will just file trading accounts when they become due and update your company's activities in your next Annual Return.

You will have to file trading accounts, not dormant accounts, and will need to re-register for things such as VAT if necessary.

Important things to note about dormant companies

In order to be deemed a dormant company, the company must not have any significant transactions during the company year – and you should be careful therefore not to confuse it with a non-trading company.

A non-trading company, while not generating any business, may still have other significant transactions in the accounting year, such as rent payment, fees for legal retainers or accountancy, wages and more. Therefore, although it is not doing any business, it is not considered to be dormant. A dormant company will have no significant accounting transactions whatsoever, including any of the above.

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