A dormant company is a registered company that is not trading or receiving any form of income. However, the term ‘dormant’ means different things at Companies House and HMRC, so it’s important to understand their respective definitions.
Below, we take a look at these different definitions at Companies House and HMRC, the filing obligations of a dormant company, and the most common reasons why companies become dormant.
A company is deemed dormant at Companies House if it has no ‘significant’ transactions within a financial year.
Significant transactions include all forms of income and expenditure (even bank account fees, charges, and interest), apart from:
If your company is dormant, you will still be required to report changes and deliver confirmation statements and annual accounts to Companies House.
However, if your company also qualifies as ‘small’, you can file dormant company accounts (rather than full statutory accounts) at Companies House. These are simplified (‘abridged’) accounts and they do not have to be audited.
If your dormant company becomes active at some point in the future, Companies House will be made aware of this change of trading status when you file your next set of (normal) annual accounts.
A company is usually dormant at HMRC (aka dormant for Corporation Tax) if it:
HMRC’s definition of ‘trading’ is wide-reaching and includes the following types of business activities:
However, there are certain preliminary activities and expenditure related to setting up a business that HMRC does not classify as ‘trading’. These include things like writing a business plan, negotiating contracts, and incurring costs when deciding whether or not to start the business.
If your company is dormant for Corporation Tax, you must notify HMRC as soon as possible. To do this, you will need to provide:
At Rapid Formations, we have created a free Dormant Company Notification Letter Template . You can download and complete this letter to tell HMRC that your limited company is dormant for Corporation Tax.
Unless HMRC sends you a ‘Notice to deliver a Company Tax Return’, you won’t have to file a Company Tax Return or annual accounts with HMRC until your company begins trading.
If and when your company does start to trade, it will become ‘active’ for Corporation Tax. You must notify HMRC within 3 months by registering (or re-registering) for Corporation Tax. You can do this using HMRC’s online registration service .
There are many reasons why a company may be dormant for a certain period of time, or even for its entire existence. The most common reasons include:
You don’t have to tell Companies House or HMRC why your company is dormant.
There is no limit to how long a company can remain dormant. It can be any length of time, from a few months to the entire lifetime of the company.
You simply need to meet your statutory filing and reporting requirements for Companies House and HMRC, as outlined earlier in this post.
We’ve explained what dormant company status means at Companies House and HMRC, provided a brief outline of the filing and reporting requirements, and listed the most common reasons why a company may be dormant for any length of time.
If you have any questions about this topic – or about limited companies in general – please contact us or leave a comment below.