In the following article, we explain what a dormant company is, how to make a company dormant or change it back to active and the advantages of a dormant company.

A company is considered to be dormant in the UK if it hasn’t had any significant accounting transactions during the financial year. Such companies are considered inactive for Corporation Tax purposes if they are not involved in any kind of trading activity, including:

• Buying and selling goods and services
• Operating payroll
• Paying directors salaries
• Issuing shareholders dividends
• Renting or purchasing property
• Paying accounting fees through the business bank account

If the company is dormant you can disregard the following transactions:

• Filling fees paid to Companies House
• Penalties for late filing of accounts
• Money paid for shares when the company was incorporated.

The dormant accounts must still be delivered to Companies House no later than 9 months after the accounting date and the directors must prepare dormant accounts every year, even if the business remains dormant from one financial year to the next. The confirmation Statement also needs to be submitted to Companies House at least once every 12 months.

If your company becomes dormant you need to contact the Corporation Tax Office in writing as soon as possible. You’ll be required to complete a Company Tax Return and pay any Corporation Tax on any profits made before the company became dormant.

If the company was also registered for VAT, you must tell HMRC that you have ceased making VAT taxable supplies and you wish to cancel their registration.

If the company successfully becomes dormant you will receive a letter from HMRC confirming the date of cancellation.  You will not have any tax liabilities to pay and they will not be required to prepare accounts of tax returns for HMRC for that period

If you wish to change your company status from dormant back to active, you must inform HMTC within 3 months.  If the company has traded in the past, you can log into your HMRC account and register as active for Corporation Tax.  If the company has never traded, you must register for Corporation Tax.

There are several possible reasons for keeping a company dormant, such as:

• Protecting a brand, company name or trademark
• Reserving company name
• Holding assets