A Guide to Company Dormancy in the UK

Let's dive into the world of dormant companies in the UK. These are businesses that aren't currently active, but they're still registered with Companies House. Being dormant doesn't mean they're gone for good; instead, they're taking a break from trading. Maybe they're planning a comeback or just pausing operations for a while. Despite being dormant, these companies still have certain responsibilities, such as filing annual accounts and maintaining their company records. Dormant company services provide essential support to ensure these obligations are met efficiently and in compliance with regulatory requirements.

What is a Dormant Company?

A dormant company, as defined by the UK government, is one that has no significant accounting transactions during a financial year. While the company may exist legally, it remains dormant either because it's awaiting the commencement of trading activities, undergoing restructuring, or simply maintaining its legal status for future use. Here's a breakdown of what defines a dormant company:

• **No Active Trading: **Dormant companies don't conduct business transactions or sell goods or services during a specific period.
• Limited Financial Activity: They don't have significant financial transactions in business bank account like payments or receipts, except for minor transactions necessary for maintaining the company's legal status.
• No Operations: Absence of business operations, such as buying or selling goods/services.
• **Administrative Functions: **Despite not trading, dormant companies might still handle administrative tasks like keeping statutory records up-to-date and fulfilling regulatory obligations.
• Legal Entity: It remains a registered company despite dormancy.

In short, a dormant company is like a business on pause, waiting for the right time to resume operations.

Why would a Limited Company be Dormant?

A limited company might choose to become dormant for several reasons, including:

1. Preparation for Future Operations: The company might be in a phase of planning or restructuring, preparing to enter new markets or launch products/services in the future.
2. Market Conditions: Economic or market conditions might not be favorable for active trading, so the company decides to temporarily pause operations until conditions improve.
3. Strategic Pause: The company might want to take a strategic break from trading to focus on other aspects such as research and development, or to reassess its business strategy.
4. Ownership Changes: Changes in ownership or management could lead to a temporary halt in trading activities as new strategies are developed or implemented.
5. Tax and Compliance Reasons: Dormant status can offer financial relief by reducing tax liabilities and regulatory burdens, especially if the company isn't generating revenue.
6. Asset Protection: Keeping the company dormant can help protect its assets during times of uncertainty or transition, safeguarding them for future use.

How to Make a Company Dormant?

Turning a company dormant is a simple process. Here's how to do it step by step:

1. **Check Eligibility: **Make sure your company qualifies for dormancy. Usually, this means it hasn't had any major financial transactions. If it has, wrap up any outstanding deals or dissolve assets if needed.
2. Update HMRC: Tell HMRC about your company's dormant status. This ensures you're still meeting your tax requirements and avoids any penalties.
3. Bank Accounts: If your dormant company has a bank account, inform the bank about the change. Some banks offer specific services or accounts for dormant businesses, so ask if any adjustments are needed.
4. **Stay Compliant: **Even when dormant, your company must keep up with certain filings. This includes submitting annual accounts and returns to Companies House, along with a confirmation statement confirming company details. If you have a small business accountant, let them know too, as they'll need to prepare and file dormant company accounts with Companies House.

Dormant Company Legal Requirements

Dormant companies have specific obligations to meet for Companies House and HMRC.

Annual Accounts: Directors must prepare annual accounts for Companies House each year. Even if the business stays dormant from one financial year to the next, you still need to do this. However, dormant accounts are simpler. You only include a balance sheet and any relevant notes about the information in the account.

Your annual accounts should reach Companies House no later than 9 months after your accounting reference date (ARD).

Annual Confirmation Statement: Every company, whether active or dormant, must create an annual confirmation statement at least once every 12 months. This document confirms important company data on a specific date (the 'confirmation date'). Companies House uses this to ensure that the registered details are accurate and up to date.

You must file a confirmation statement by the anniversary of incorporation or the anniversary of the confirmation date of the last statement. You have 14 days after this date to submit it to Companies House.

How Long Can I Keep My Company Dormant?

There's no deadline from Companies House for how long you can keep your company dormant. As long as you keep up with submitting your annual returns and accounts on time each year, Companies House won't hassle you about it.

How Do I Restart My Dormant Company?

You need to inform HMRC within 3 months if your dormant company starts trading again. If your company has traded before, you can log into your HMRC online account and switch your status to 'active' for Corporation Tax.

If your company has never traded since it was set up, you must register for Corporation Tax online and create an HMRC online account. In both cases, you'll need your company's Unique Taxpayer Reference.

For new traders, you must provide HMRC with:

• Full company name
• Company registration number (CRN)
• Start date of business activities
• Address where main business activities are carried out
• Nature of business activities
• Accounting reference date (the date your annual accounts are prepared up to)

Keep accurate business and accounting records to complete your Company Tax Returns and figure out your Corporation Tax. If you need help, consider hiring limited company accountants or availing professional company dormant accounts service.

If your annual business turnover is expected to surpass £90,000 (the 2024/25 VAT registration threshold), you must register for VAT. If you employ anyone, register with HMRC as an employer and enroll for Pay As You Earn (PAYE).

You don't need to inform Companies House when your business becomes active again. The change is reported when you submit your annual accounts, so no separate action is needed.