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Dormant companies

There are various reasons why a company may be dormant - but what are the tax implications and what is the process of making a dormant company active?

A company is considered 'dormant' if it has ceased trading and does not receive any form of income. It will still be registered at Companies House (or Companies House in Edinburgh for companies registered in Scotland) and you will be required to file annual accounts and a confirmation statement. Reasons why a company may be dormant include:

  • reservation of company name prior to launching a business

  • restructuring of a formerly active business

  • if the owner needs to take an extended period of leave

  • it is acting as a holding company for intellectual property or other assets

New company

Setting up a dormant company from scratch is relatively straightforward. Register your company with Companies House in the usual way - for more information, read How to register a company in 5 steps

Following company formation, HMRC needs to be informed of the dormant status. You can do this by phone or post.

Previously active companies

In order to make an existing active company dormant, all bills must be paid and contracts cancelled. Any agreements with customers should be terminated and amounts due or owing reconciled. Outstanding taxes and VAT must be paid, along with any final wages due, and the correct procedures need to be implemented regarding dismissal or redundancy of employees (including the closure of PAYE schemes). Business bank accounts should also be closed.

HMRC can then be informed that the company is dormant for corporation tax. If your company has never received notice to deliver a Company Tax Return, you can do this by phone or post. If you’ve filed a Company Tax Return or received a ‘notice to deliver a Company Tax Return’, you will need to file a Company Tax Return online. This will show HMRC that your company is dormant for this period. For more information on the process, see the government’s guidance.

Companies that are registered for VAT must de-register within 30 days of becoming dormant. If you plan to restart trading, you must send ‘nil’ (or empty) VAT returns while your company is dormant.

Once you’ve told HMRC that your company is dormant, you don’t need to pay corporation tax or file another Company Tax Return unless you receive further notice to deliver a Company Tax Return.

While your company is dormant, annual accounts and confirmation statements must still be filed with Companies House every year. Companies that are dormant and considered as 'small' can submit 'dormant accounts' instead. They are not required to include an auditor's report with their accounts. For further information, read Annual accounts and tax returns and Prepare annual accounts for a private limited company.

According to Companies House, in order to remain dormant, no 'significant' transactions should have been made by the company in the previous financial year. These exclude:

  • filing fees paid to Companies House

  • any penalties in respect of late filing of accounts

  • payment for shares when the company was incorporated

You must tell HMRC when your dormant company starts trading again, as it will immediately lose its dormant status and be considered active for purposes of corporation tax.

To start this process you will need to:

  • enter your company’s Government Gateway User ID and password on the government website. If you do not have a user ID, you can create one when you log in

  • collect your statutory accounts and Company Tax Returns after your company's year end

  • inform HMRC that your company has restarted trading by registering for corporation tax again

  • send accounts to Companies House within 9 months of your company's year end

  • pay any corporation tax due within 9 months and 1 day of your company's year end

  • send a Company Tax Return, this includes full statutory accounts, to HMRC within 12 months of your company's year end

Reporting deadlines

As you should have been sending accounts to Companies House each year while your company was dormant,  your reporting dates stay the same for annual returns and accounts. However, your corporation tax accounting period is different as it begins when your company restarts business activities.

If you want to have the same date for your Companies House accounting reference date and the end of your Corporation Tax accounting period, you can:

  • keep your company’s accounting reference date the same with Companies House

  • prepare your statutory accounts as usual for the 12 months up until your accounting reference date

  • send your accounts to Companies House and use them to complete your Company Tax Return

Dormant companies, by their very definition, are also non-trading. However, non-trading companies are not always dormant.

Companies that do not carry out business may still be involved in significant transactions (eg pre-trading expenditure). If so, even if they are not trading at all, they will not be classed as dormant.

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