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When a company has been inactive in terms of trading and receives no income for a 12-month accounting period or more, it is regarded as a dormant company. Many people often consider dormant companies as closed companies, but it is not the case.
People in business might purposefully form their company a dormant one. Though, when all the companies are formed and registered with the Companies House, they are dormant as they don’t have any previous business transactions or trading history.
Companies House acts as a registrar of all the companies in the United Kingdom, under Her Majesty’s Government. A dormant company’s status must be updated with the Companies House. A company can remain dormant indefinitely as long as it is registered as dormant with the Companies House.
How to Keep a Company Dormant?
Requirements for Companies House
If you wish to keep your company’s status dormant for a while, you will be required to file several documents and submit forms every year to the Companies House. This can be done by yourself or with the help of any simple service provider.
1. Annual Confirmation Statement
This statement confirms that the companies are dormant. It requires the following details:
- Company Name and Number
- Registered Office Address
- Director details
- Company Secretary Details (if appointed)
- SAIL Address (if it is applicable)
- Statutory Company Records’ location
- Shareholders’ Details (number of issued shares with the share value)
- Share structure
- Standard Industrial Classification (SIC) Codes to know the nature of business activities.
- Details of People with Significant Control (PSCs)
Failure in the submission of these documents can result in losing the company’s status as a dormant company from the public register and in the eyes of the Companies House.
It is not mandatory for filing the above documents only once a year. You can submit these at any frequency when any registered details require updating in the public record.
2. Account Details
Your dormant accounts must also be filed to prove that there has been no trading for 12 months. This can be delivered to the Companies House using form AA02.
Requirements for HMRC
If a company was previously trading before becoming dormant, it is required to file Company Tax Return with HMRC, while if it has been dormant since the day of incorporation, no filing is required.
After the HMRC is informed that your company has ceased trading, you will receive a notice regarding the company tax return delivery. If your company owes any corporation tax, it must be settled before the company becomes dormant.
Note: If your company intends never to trade again, deregister if it is registered for VAT and close your PAYE scheme.
Advantages of Keeping a Company Dormant
1. Securing the brand name
If a company is in the process of setting up without a stable launch or is new to the business and doesn’t want to start trading immediately, it chooses to become dormant to secure its brand name or trademark so that no similar company can trade under the same name. It also buys time for the new business to set up and build it.
2. Protecting trading styles
If a company is unable to trade for some time due to unforeseen circumstances and wants to preserve its trading styles so that no other can benefit from it, it becomes a dormant company.
3. Preparation to Restructure
Having a dormant company status can help you restructure your business if you wish to. For example, you are dividing your business or opening a new sector under your company name. Once the trading starts again, it won’t be a dormant company anymore.
4. Ownership of Company Assets
A dormant company can become the location to hold company assets and intellectual property.
5. Dealing with specific issues with the owner
Keeping a company dormant might help the business deal smoothly with an illness or death of the owner, maternity leave, or any other such reason.
Transactions Forbidden
A dormant company carrying out any following transactions will lose its status.
- Purchasing and selling goods and services
- Buying property or leasing
- Employing staff members
- Paying salaries to directors
- Managing investments
- Receiving dividend payments
- Issuing dividends to the shareholders of the company
- Paying bank charges/earning interest from the bank
- Paying accountancy and legal fees from the bank account of the business
Transactions Allowed
- Payment of shares from the first shareholders of the company (the ones that joined the company at the time of incorporation)
- Payment of fees and charges to the Companies House while filing the annual confirmation statement and changing the company name
- Payment of late filing penalties to HMRC
- Company re-registration
Changing the Status as a Dormant Company
If your company wants to restart trading, it must follow the following steps to change its status from dormant to active
- Inform HMRC that your company has resumed within three months of receiving any form of income and trading
- Register for Corporation Tax by logging into your online HMRC account
- Send account details to the Companies House
If your company has never traded or carried out any business activity,i.e., been dormant since the day of its incorporation, follow the following steps to change its status:
- Register for Corporation Tax using a company Unique Taxpayer Reference (UTR) number
- Provide the following details to HMRC to update the details:
- Full Name of the Registered Company
- Company Registration Number (CRN)
- The date your business activities started or became active financially
- Address of the place where all the business or trading activities will be carried out
- Standard Industrial Classification (SIC) Code for the knowledge of the nature of your business activities
- Accounting Reference Date (ARD) as a reference date up to which the accounts will be prepared
- Register for PAYE tax if the company starts employing staff
- Register for VAT if the company is expected to exceed the VAT registration threshold (check the VAT registration threshold of the current year)
You can appoint a consultant or a tax adviser to help you manage the business accounts timely and avoid any harsh penalties.
