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Guide to filing accounts for your dormant company

Guide to filing accounts for your dormant company
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    What do you mean by a “dormant company”?

    Your limited company is dormant if it is not engaged in any trading activities and does not receive any revenue.

    Dormancy is looked at from two viewpoints:

    • Company tax returns and Corporation Tax payments
    • Yearly accounts for Companies House (if it’s a limited company)

    What are the elements included under trading?

    • Selling
    • Buying
    • Advertising
    • Receiving interest
    • Renting property

    What is the procedure that you must follow if you think that your company is dormant?

    If your company has ceased trading and has no other form of income, you can inform HMRC. However, if you have already received a notice from HMRC to file a company return, you will need to file a return to show that your company is dormant for the accounting period.

    Dormancy for Companies House

    Your company would be considered dormant by Companies House if it had no “significant” transactions during the accounting year.

    Significant transactions are not inclusive of:

    • Penalties imposed for late account filings
    • Amounts paid for acquiring shares when the company was incorporated
    • Filing fees paid to Companies House

    You have no obligation to inform Companies House if your dormant company restarts trading. The following set of non-dormant accounts you file will indicate to Companies House that your company is no longer dormant.

    Why would a company become dormant?

    The company owners are currently in the initial stages of setting up business operations to start trading in the future.

    The company has been set up to safeguard a company name or hold an asset such as intellectual property, land, or real estate.

    A sole proprietor is planning to convert their business to a limited company but has not started to move the business yet.

    A company previously trading has decided to take a break to restructure its operations or pause for another reason.

    A company has stopped trading permanently and is planning to be closed and formally struck off the Companies House register.

    Can your dormant company carry out any transactions?

    When your company is dormant, you will not be able to carry out significant transactions.

    If your company intends to succeed in the test of dormancy conducted by Companies House, your transaction must be limited to:

    • Payments for shares of subscribers
    • Penalty charges made to Companies House
    • Charges for re-registering your company
    • Fees payable to Companies House for a change of name
    • Costs for filing confirmation statements

    How can you change your company from “dormant” to “active”?

    If your company has never traded since its incorporation, you must register online for Corporation Tax by creating an HMRC online account. If your company has traded in the past before going into dormancy, you should log into your existing HMRC online account and register as “active”.

    Remember to inform HMRC within three months of your company being active. In either of the situations mentioned above, you will require your company’s UTR to proceed.

    If it is the first time that your company has traded, you will have to provide the following information to HMRC:

    1. Company name
    2. Company registration number (CRN)
    3. The address of the place where the principal business activities take place
    4. Commencement date of business activities
    5. The reference date of accounts
    6. The nature of business activities

    You should always maintain accurate company records to determine your Corporation Tax liability. If you expect your company’s sales to exceed £85,000, you will have to register for Value Added Tax (VAT).

    After your company becomes active, if you expect to employ persons in your company, you will also have to register as an employer in HMRC and enrol for PAYE.

    Do you require a bank account for your dormant company?

    When your company is dormant, you cannot receive or spend money as it will indicate your company is active. It would be best to close your business bank account once you enter dormancy, to remove any potential risks.

    It is important to note that any minor entry or transaction, which may be a small interest charge or an automatic deduction of bank fees, may alert HMRC, which will forfeit your company’s inactive status. If this happens, you will have no option but to prepare a set of full accounts for Companies House.

    You should pay close attention to the following before proceeding with the closure of your business bank account:

    • Cancel all your standing order payments and Direct Debits
    • Settle all your liabilities
    • Inform your suppliers and notify them that the bank account is no longer active and that they should not take any payments from the account

    When everything is complete, you can instruct your bank to close your business bank account. In the future, if you wish to start trading again, you can open a new bank account.

    After the closure of your dormant company’s bank account, you can use your personal bank account to cover any incidental costs.

    Are there any tax liabilities for your dormant company?

    If your company maintains its inactive status throughout the year, you will have no tax liabilities to fulfil.

    However, if your company commences or ends trading activities within a financial year, you will be liable to pay taxes on the taxable income generated within the active period.

    Dormancy for company tax returns and Corporation Tax payments

    You should meet the following criteria to consider your company dormant:

    1. The company is a fresh business that has not started any trading activities yet
    2. The company has ceased trading and does not have any other income. (e.g. investments
    3. The company is a flat management company
    4. The business is an unincorporated club or association that owes Corporation Tax of less than £100

    What is the procedure followed by HMRC if it thinks your company is dormant for CT?

    If HMRC thinks that your company has become dormant, they will send you a letter stating that:

    • They have planned to treat your company as dormant
    • They do not require you to file any company tax returns or pay any Corporation Tax

    We at WIS Accountancy are equipped with accountants with years of experience handling dormant company accounts. If you are a company owner looking to make your company dormant or require assistance in any other area of accounting relating to your company, you can speak to our dedicated team on 0203 0111 898.

    FAQs

    Do you need to file accounts for a dormant company?

    Even if you do not intend to carry out any business activity through your limited company, filing annual accounts and completing the confirmation statements is mandatory.

    Do I need to inform HMRC if my company is dormant?

    You should inform HMRC of your company’s state of dormancy unless HMRC has identified that from your most recent tax return.

    Do dormant companies pay Corporation Tax?

    Dormant companies don’t have to file a tax return, and they don’t have to pay Corporation Tax.

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