What is a dormant company?

What is a dormant company?

You may have only heard about dormant companies in relation to closing a business. But there are a few reasons why a company would be dormant. 

A company is considered dormant if it is not “trading” and doesn’t have any other income. So, a company could be that dormant if it has ceased trading, and no longer receives an income. Alternatively, you could be considered a dormant company if you’re a brand new start up and have yet to start trading, therefore receiving no income. 

Be aware, dormant means different things to HMRC and Companies House

HMRC will consider your company dormant if:

  • There is no business trade or professional activity.
  • It is a new limited company which has not started trading yet. 

However, Companies House considers a company dormant if there has been no transactions during the financial year, so for example no income generated or interest earned.

This means, even when a company is dormant, you do still have to file the annual confirmation statement to Companies House. The annual confirmation statement informs Companies House of any structural changes to your company. But for the statutory accounts, a simple set of dormant company accounts is all that is required.

You may choose to have a dormant company 

Far from being just being a means to an end, registering as a dormant company can actually be beneficial for the following reasons: 

  • If you want to protect/reserve a name

You started as a sole trader and have a trading name, you may wish to protect that name by registering a dormant company so that name is yours as and when you may change to limited status to use it.

  • Preserving a company if you stop trading for a period of time. 

If you do not intend to stop trading permanently then you may wish to retain the company as dormant whilst this occurs. 

  • Set one up for future use 

You may have an amazing innovative idea in mind for a company and want to set everything up so you are good to go when you actually start trading. 

The process for setting up a dormant company is the same as registering any limited company

This means you’d need to incorporate at Companies House as usual, but ensure you don’t tell HMRC that you’ve started trading. This will mean HMRC have you down as dormant and won’t ask for a Corporation Tax return to be filed. You’ll need to let them know within three months when you do start trading. 

Whilst this is doable yourself it is highly recommended you speak to an accountant to help you with this to ensure everything is set up correctly – we explore this further here.

We can of course assist with setting up your dormant company. You can find all the details of our Incorporation Service here.

Declaring an existing company dormant

We’d always recommend speaking to an accountant on this to ensure this is the right route for you. You’d need to make sure that you meet the requirements of a dormant company during the full financial year. Then it’s a case of filing dormant accounts rather than the usual ones, and writing to HMRC to advise of your dormant status. 

Depending on how long you plan to be dormant it may be worth just filing a nil corporation tax return for a year or two to save HMRC making any errors!