Many people mistakenly believe that a dormant company is a company that has shut down or closed. But this is not the case. So, read on this post to find out:
- What is a dormant company?
- Reasons for making a company dormant
- What activities a dormant company can’t perform?
- Dormant for Corporation Tax
- Dormant for Companies House
- Fill in the AA02 form
- What information does Companies House require?
- What does HMRC require from a Dormant Company?
- How to make the dormant company active again?
What is a Dormant Company?
It is an inactive company if it is not performing any trading activity and not getting any income from trading and investment. This company is incorporated at Companies House. HMRC considers it inactive for paying corporation tax. And, it can be dormant right after its incorporation or after trading for some time.
Reasons for Making a Company Dormant
There are various reasons for making a company dormant. People make company dormant for:
- securing a company name to launch it in the future
- protecting the name from other businesses
- restarting a business that was active previously
- taking a break due to illness, travel, maternity leave, or any other reason
What Activities a Dormant Company Can’t Perform?
If a company is declared dormant, it can not perform any business activity and earn any income. The activities that a dormant company can’t perform include:
- hiring staff
- paying the salaries of the directors
- buying and selling goods and services
- leasing/buying property
- issuing dividends to company shareholders
- earning interest/paying bank charges
- managing investments and receiving dividend payments
- paying legal/accountancy fees from the company’s bank account
Dormant for Corporation Tax
Your company would be considered dormant when it has stopped trading and is not earning from any other source, like an investment. In addition, a dormant company doesn’t need to pay corporation tax if:
it has stopped trading and has no other source of income
it’s a new limited company that is yet to start trading
it’s a flat management company
it’s an unincorporated club/association that needs to pay below £100 as Corporation Tax
Dormant for Companies House
Your company is considered dormant for Companies House if it had no notable accounting transactions during a fiscal year and is registered at Companies House. For it, the transactions of a dormant company need to be limited to:
- Shares payments
- Filing annual returns
- Paying penalties or fines to Companies House
- Fees charged by Companies House for changing the business name
You need to file your confirmation statement, along with annual accounts, even if your company is dormant for HMRC and Companies House.
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Fill in an AA02 form
If a dormant company has never traded, you need to fill in the form AA02 for filing the dormant company accounts. You can visit the government website to file them online, instead of filling out the paper form. You need to file it after 9 months at the company year-end. But if you’re filing the accounts for the first time then you are provided 12 months and the deadline can be 21 months from the date of incorporation.
Information Required for Companies House
The annual confirmation statement requires the following information:
- Company name and registered office address
- Directors’ details
- SAIL address (if applicable)
- Secretary details (if one is appointed)
- Location of statutory company records
- Shareholders’ details
- Nature of business activities (SIC codes)
- Details about issued shares
- Details about people with significant control (PSCs)
What Does HMRC require from a Dormant Company?
A dormant company is obliged to file a company tax return with HMRC if it was performing any business activities before becoming dormant. If your company become dormant right after incorporation, you are not required to file any tax returns until you become active. This is needed to work out the corporation tax that needs to be paid to HMRC.
How to Make Your Dormant Company Active?
For a company that became dormant right after incorporation, it needs to register to HMRC first. And if your company was performing trading activities before, you need to follow these steps to make your company active:
inform HMRC that you have registered for the corporation tax for restarting again
file annual accounts to Companies House ( within 9 months of your company year-end)
pay any Corporation Tax that you owe (within 9 months and one day of your company year-end)
submit a Company Tax Return to HMRC ( within a year of your company year-end)
Quick Sum Up
After reading this post, we hope you have understood what is a dormant company, what are the reasons for making it dormant, what are the legal requirements you need to follow for Companies House and HMRC and how can you restart your company again. Restarting a dormant company is a straightforward process. However, you need to ensure that you contact HMRC and file necessary details to Companies House within the deadline. Remember, you need to submit dormant company files same as an active company to avoid future troubles.
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Disclaimer: This blog is written for general information on dormant companies.