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”.
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:
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.
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.
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.
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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