Dormant Companies and Non-trading Companies are the same thing, working as a standard limited company that does not trade or have any accounting transactions. They are registered with Companies Houses but are not performing any kind of business activity or receiving any form of earnings/income.
Another situation where a dormant company may be useful is if you have already been operating as a limited company, but you are stopping trading for a period of time. A dormant company has different definition, depending on if it is for Companies House or for Corporation Tax purposes (HMRC).
Closing a company permanently to reconsider other priorities, strategize, only to start all over again can be time-consuming, costly, and an administrative burden. Going dormant could be the best option for you. Closing is final compared to making your company dormant which is a temporary measure.
By registering as dormant, you are buying yourself time to invest your energy, ideas, plans or money in another area, knowing fully well that you could start all over from where you stopped. For dormant companies, there is often very little to report because of the less activities within the company.
The details of how to make your company dormant can be found on the official letter you will get from HMRC delivered to your registered office address or your nearby tax office. A dormant company is a good way to keep your business in place till you are ready to trade as a limited company or sole trader.
The only allowed transactions a dormant company is allowed to perform are Payments made to Companies House for changing a company name and filing annual returns, Payments for company shares from the first shareholders, Payment of late filing penalties to HMRC, re-registration of a company, Payment for shares by subscribers to the memorandum of association, filing annual returns, Fees paid to the Registrar of Companies for a change of company name, and Payment of a civil penalty for late filing of accounts. A dormant company cannot receive any form of profits or perform any of the following trading activities:
- Paying bank charges or earning interest
- Paying accounting or legal fees from the business’s bank account
- Investment management and receiving dividend (bonus) payments
- Buying and selling of goods and services
- Buying or leasing property
- Staff employment
- Payment of directors’ salaries
- Issuing dividends (bonus) to shareholders
There are a couple of reasons why you might consider making your company dormant instead of closing it down;
- Reservations of company name prior to launching a business
- The company is no longer trading and you want to restructure it
- It is acting as a holding company for intellectual property or other assets. Dormant companies can also be used to hold an asset, such as a freehold property.
- If the owner needs to take an extended period of leave as a result of illness, travels, vacation, maternity leave, sabbatical or even just taking a break.
- It is acting as a holding company for intellectual property or other assets. Dormant companies can also be used to hold an asset, such as a freehold property.
Companies House definition of a dormant company
Companies House state that a company is dormant if it has made no significant transactions during an accounting year. In a case where there have not been any major company transactions in a financial year, your company as dormant according to companies house laws.
Same as Any form of penalty which is due to be paid to Companies House do not often count as significant transactions (A significant accounting transaction is one which the company enters in its accounting records). It means that there cannot be any other active transactions coming in and out of this business.
Companies House often requires an Annual Return each year and dormant company accounts in respect of each accounting year. The Dormant company accounts has to contain the previous year’s figures along with a balance sheet with notes and a statement that the company was dormant for the entire accounting year.
The Annual Return must contain the following information:
- The Information of the statutory records
- Details of the directors and shareholders in the company
- The name of the limited company
- The Registered Office address of the company
- Details of the Share capital
They are mandated to file annual returns and dormant company accounts with Companies House. The account consists of a balance sheet and any other related records. This records can be sent directly to Companies House either by mail post or online. The first annual return of a company has to be delivered within limit of 9 months to a year from the incorporation’s date.
Companies House send reminders of filing dates. Dormant companies need to file an annual return with Companies House yearly. Your company’s confirmation statement must be updated regularly, and this is separate from your company accounts. Subsequent returns are payable within a year of the date of the earlier annual return.
The aim is simply to authenticate significant company details to guarantee the public register remains correct and updated. Likewise, dormant companies must make sure statutory company records are kept updated and made accessible for public inspection at the SAIL or registered office. Any modification or changes made to a company’s registered details has to be reported to Companies House immediately. The public record will be updated accordingly.
This is a document that lists the important company details at a specific date, including:
- The Company’s name
- Details of Shareholders
- Information regarding issued shares
- SAIL address (if valid)
- Valid Registered office address
- Details of Directors
- Secretary’s details (optional in some cases)
- Location of constitutional company records
HMRC definition of a dormant company
According to HMRC, any company that is not active is not liable for Corporation Tax. If your company has not started trading yet, then it is not active for Corporation Tax purposes. The purpose of registering a company as dormant is to temporarily close down the majority of any business and its financial activities.
It just means that your company is considered inactive. This is As long as your company does not engage in any profit-making trade. A dormant company you cannot actively trade or carry out profit making activities or transactions. HMRC considers a company dormant if:
- It is an investment trust, pension or client account company and is not making any trade.
- Its assets are not likely to produce income or profits in coming years.
- It is not actively engaged in receiving income or profits in the business. At this stage, the company has not begun trading yet.
- It can also help you to protect your business name.
- It is holding assets that may not end up generating income or profits
- It is not incurring costs, other than incidental compliance costs.
A dormant company does not need pay any tax until it becomes active again, just long as it has have undergone all of the appropriate actions in register your company as dormant. the company can stay dormant up to any length of time, but the local corporation tax office will have to be notified as soon as it becomes dormant. Dormant companies are expected to file a Company Tax Return with HMRC if they were trading before becoming inactive.
Dormant company account records
All companies that are inactive must file annual accounts at Companies House. You might not immediately notify Companies House when your company becomes inactive but you still need to file dormant accounts and annual returns every year.
This is a procedure through which Companies House is notified of a company’s inactive status even though the HMRC is usually first notified. The amount of records you provide when running a dormant company is usually not as much as the one you provide for an active company. Accounts for a dormant company need only include the following;
- A balance sheet which contains a statements above the company director’s signature and their printed name confirming the company was dormant for the entire accounting period
- Notes on the balance sheet.
- the previous accounting year’s figures for comparison purposes
Dormant companies bank accounts
It is wise owning a business account to separate personal funds from business funds, but it is not advisable to open a business bank account while your company is dormant. In a case where your company have traded and already owns a business account, it best to close it to avoid charges applicable to the account or unforeseen payments being made, which would affect your company’s dormant status. At this stage, your personal account could be used for any minor payments you may need to make.
Ways to get active again
One major reason for making a company dormant is for flexibility when starting all over for a business owner. To begin, you have to contact HMRC to Register for Corporation Tax all over. The HMRC will require that you provide the following statutory details:
- Name of the company
- The date your company became active which has to correspond with the date of your company’s accounting period for corporation tax.
- Office address
- Accounting reference date (ARD)
- Company Registration Number (CRN).
- Standard Industrial Classification (SIC) code (which is the nature of the major business activities your company is involved in)
Send in your accounts to Companies House which should be within 9 months of your company’s year-end. Make payments to any Corporation Tax that is owed which should also be done within 9 months and one day of your company’s year-end. Finally, Send a Company Tax Return within 12 months of your company’s year-end.
Legal obligations of a dormant company
It is advisable that company owners inform HMRC when a dormant company is about to changes into an active trading company. Usually, when new companies are formed, HMRC sends a form to notify them of their Unique Taxpayer Reference, requesting for information about the company. The form also includes a section for dormant companies. Business owners are to notify HMRC that the company is dormant.
Company Directors with the intention of becoming dormant could easily face the penalty of being prosecuted if they do not file their documents with Companies House on time. Submit all the required paperwork for your company before deadline.
They are also subject to penalties of £5,000 when they miss deadlines. It is considered a criminal offense when such act is committed. Late submission of annual accounts also attracts a civil penalty or could even be struck off the register, as well as Filing incorrect paperwork, missing the filing date or not filing.
Not complying could include fees of up to £5,000 with personal prosecution. The longer the delays, the higher the fees will be. The moment you receive a reminder from Companies House, You should begin to get the necessary papers for submission. In a case where the director files for an immediate appeal, your late penalties can be removed, but only with a valid reason for missing this date.
The company also has to:
- Uphold all the statutory obligations of company houses
- File dormant accounts and annual returns without any form of error
- Report any form of modifications to registered company details
- Keep company records updated and accessible for public inspection
