Are you considering putting your limited company into a dormant status? Understanding the ins and outs of this process is crucial. In this guide, we’ll explore what it means to have a dormant limited company, why you might choose this status, and the key steps involved in making your company dormant.
A dormant company is one that is registered with Companies House but is not actively trading. It’s important to note that even if your company is dormant, you still have certain obligations to fulfill. These include filing annual accounts and an annual confirmation statement with Companies House. However, a dormant company does not need to pay corporation tax as long as it remains dormant throughout the financial year.
In this guide, we’ll cover everything you need to know about dormant limited companies, from the benefits of dormant status to the steps involved in making your company dormant.
What is a Dormant Limited Company?
A dormant limited company, also known as a dormant business entity or dormant status company, refers to a company that is currently not engaged in any business activities or generating income. It is considered inactive for Corporation Tax purposes and may also be classified as dormant by Companies House.
Even though a company is dormant, it still has certain obligations that need to be fulfilled. These obligations include filing annual accounts and a confirmation statement with Companies House.
If the company meets the criteria for being ‘small’ and is dormant according to Companies House, it can file simplified ‘dormant accounts’ and is not required to include an auditor’s report.
It is important to note that a company is called dormant by Companies House if it has had no significant transactions in the financial year, which excludes filing fees, penalties, and money paid for shares during incorporation.
If a dormant company decides to resume trading, it does not need to inform Companies House. Instead, the non-dormant accounts filed will indicate the change in status.
Requirements for a Dormant Company
A company is considered dormant for Corporation Tax purposes if it is not engaged in any trading activities or generating income, including investment income. It can also be classified as dormant by Companies House if it has had no significant accounting transactions during the financial year. This definition is stricter than the one applied for Corporation Tax purposes.
When a company is dormant, it still has certain requirements to fulfill. It must file annual accounts with Companies House, even if the accounts are simplified dormant accounts. Directors are responsible for preparing these accounts, which typically include a balance sheet and relevant notes. Additionally, all dormant companies, regardless of size, must file an annual confirmation statement with Companies House.
To summarize:
- A dormant company for Corporation Tax is one that is not engaged in any trading activities or generating income.
- A dormant company according to Companies House has had no significant accounting transactions during the financial year.
- All dormant companies must file annual accounts with Companies House, including simplified dormant accounts.
- Directors are responsible for preparing the annual accounts, which consist of a balance sheet and relevant notes.
- Every dormant company, regardless of size, must also file an annual confirmation statement with Companies House.
| Type of Requirement | Corporation Tax | Companies House |
|---|---|---|
| Dormant Definition | Not engaged in any trading activities or generating income | No significant accounting transactions during the financial year |
| Annual Accounts | Required, even if simplified dormant accounts | Required, including simplified dormant accounts |
| Preparation | Directors responsible | Directors responsible |
| Annual Confirmation Statement | Not applicable | Required |
Reasons for Dormant Status
There are several reasons why a company may choose to be dormant. One common reason is to protect a brand name or trademark. By forming a dormant limited company, the company can ensure that its preferred name is not registered by another business. Dormant status can also be used to reserve a company name for future use, such as when planning a new business venture. Additionally, a company may become dormant during a period of restructuring or when holding assets or intellectual property. In some cases, dormancy may be a temporary measure due to the death or illness of the business owner.
Protecting Brand Name
A dormant status can be beneficial for companies that want to safeguard their brand name or trademark. By establishing a dormant limited company, businesses can prevent other entities from registering and using their desired brand name. This ensures that their brand identity remains intact and protected, giving them a competitive advantage in the market.
Reserving Company Name
Another advantage of maintaining a dormant status is the ability to reserve a company name for future use. When businesses have plans for a new venture or project in the pipeline, they can keep their desired company name dormant, ready to be utilized once the time is right. This allows them to secure their chosen name and avoid potential conflicts or legal issues with other businesses.
Restructuring Business
Dormancy can also be beneficial during periods of business restructuring. When companies undergo significant changes in their operations, management, or ownership, they may choose to temporarily become dormant. This provides them with the necessary time and space to reorganize their business structure, revise strategies, and adapt to new market conditions without the burden of ongoing operational or financial activities.
Holding Assets
Companies may opt for dormant status when they need to hold assets or intellectual property without actively conducting business. By maintaining a dormant company, they can retain ownership of valuable assets, including real estate, patents, copyrights, or trademarks, without the need for active business operations. This safeguarding strategy allows them to protect and preserve their assets until they are ready to monetize or utilize them effectively.
Temporary Measure
In certain circumstances, dormancy may be a temporary measure due to unforeseen events such as the death or illness of the business owner. During these challenging times, maintaining a dormant status offers a practical solution to temporarily suspend business activities while ensuring the company’s assets and legal rights remain intact. Once the situation is resolved, the company can then resume trading or explore alternative options.
Obligations for Dormant Companies
Dormant companies have specific obligations that they must fulfill. These obligations include the preparation of annual accounts and the filing of an annual confirmation statement with Companies House.
Annual Accounts
Even if a company remains dormant from one financial year to the next, it is still required to prepare annual accounts for Companies House. The annual accounts provide a snapshot of the company’s financial position, even if there have been no significant transactions during the year. Dormant accounts are simplified and typically only include a balance sheet and relevant notes.
Annual Confirmation Statement
In addition to annual accounts, dormant companies must also file an annual confirmation statement with Companies House. The confirmation statement provides updated information about the company’s details, including registered office address, directors, and shareholders. The statement must be filed by the due date, which is typically the anniversary of incorporation or the anniversary of the last statement.
It is important to submit the annual confirmation statement even if there are no changes to the registered information. However, if any company details do change, Companies House must be notified as soon as possible.
| Required Obligations | Description |
|---|---|
| Annual Accounts | Preparation of simplified dormant accounts, including a balance sheet and relevant notes. |
| Annual Confirmation Statement | Filing of an annual statement with updated company details, even if there are no changes. |
By fulfilling these filing requirements, dormant companies can ensure compliance with Companies House regulations and maintain their dormant status while protecting their brand and reserving their company name for future use.
Reviving a Dormant Company
If your dormant company is ready to transition from dormant to active status, there are a few key steps you need to take. The first is notifying HMRC of the change within three months of becoming active again.
If your company has previously traded, the process is relatively straightforward. Simply sign into your existing HMRC online account and register as ‘active’ for Corporation Tax. However, if your company has never conducted any trading activities since its incorporation, you will need to register for Corporation Tax online and create an HMRC online account. In both cases, make sure you have your Unique Taxpayer Reference (UTR) on hand, as this will be required during the registration process.
In addition to registering for Corporation Tax, you may also need to register for VAT if your annual business turnover is expected to exceed the VAT registration threshold, which is currently set at £85,000.
Furthermore, if your company employs individuals, it is crucial to register as an employer with HMRC and enroll for Pay As You Earn (PAYE).
Remember, it is essential to maintain accurate business and accounting records to fulfill these requirements and calculate your company’s Corporation Tax liability.
| Steps to Revive a Dormant Company | Requirements |
|---|---|
| Inform HMRC | Notify HMRC within three months of becoming active again |
| Register for Corporation Tax | Sign into your existing HMRC online account or register for Corporation Tax online and create an HMRC online account. Have your Unique Taxpayer Reference (UTR) ready. |
| Register for VAT | If your annual business turnover exceeds the VAT registration threshold of £85,000, register for VAT. |
| Register as an Employer | If your company employs individuals, register as an employer with HMRC and enroll for Pay As You Earn (PAYE). |
Conclusion
A dormant limited company offers a range of benefits, making it an attractive option for business owners. One notable advantage is the ability to protect your brand name or trademark by reserving it through a dormant company. This ensures that your preferred name remains available and prevents it from being registered by another business.
While in a dormant state, the company still has certain obligations to fulfill. These include filing annual accounts and a confirmation statement with Companies House. However, if your company qualifies as ‘small’ and meets the criteria for dormancy according to Companies House, you can file simplified dormant accounts without the need for an auditor’s report.
If you decide to revive your dormant company and resume trading, you must inform HMRC within three months of the change. This involves registering as ‘active’ for Corporation Tax online and, if applicable, for VAT registration. It’s also crucial to keep accurate business and accounting records to meet these obligations and calculate your Corporation Tax liability.
Understanding the essentials of a dormant limited company, including its benefits, obligations, and the revival process, is vital for business owners considering or currently in dormancy. By being aware of the advantages and requirements, you can make informed decisions and ensure compliance with regulations.
FAQs
How is a dormant company defined for Corporation Tax purposes?
A company is considered dormant for Corporation Tax purposes if it is not engaged in any trading activities or generating income.
How is a dormant company defined according to Companies House?
Companies House considers a company dormant if it has had no significant accounting transactions during the financial year.
Can a dormant company file simplified accounts?
Yes, if a company qualifies as ‘small’ and is dormant according to Companies House, it can file simplified ‘dormant accounts’ without an auditor’s report.
What are the obligations for dormant companies?
Dormant companies must file annual accounts and a confirmation statement with Companies House.
What is the purpose of a dormant company?
Companies may choose to be dormant to protect a brand name, reserve a company name for future use, or during a period of restructuring or holding assets.
Is it necessary to file annual accounts for a dormant company?
Yes, regardless of size, all dormant companies must file annual accounts with Companies House.
What is required to revive a dormant company?
To revive a dormant company, it must inform HMRC within three months of the change and fulfill the necessary requirements for Corporation Tax and VAT registration.
What are the benefits of a dormant limited company?
Dormant companies can protect a brand name, reserve a company name, and have the option to restart trading when desired.