If your company isn’t trading or generating income, it may be classed as dormant. While that can reduce your tax obligations, there are still responsibilities you need to stay on top of.
Here’s what you need to know.
What is a dormant company?
A dormant company is a limited company that is not actively trading and has no significant financial activity during its financial year.
In simple terms, this means no buying or selling, no payroll, and no income. Because of this, HMRC treats the company as inactive for Corporation Tax purposes.
Although dormant companies do not pay Corporation Tax, they still need to file:
- Annual accounts with Companies House
- An annual confirmation statement
You will also need to inform HMRC as soon as your company becomes dormant.
Key points at a glance
- A dormant company is not trading and has no significant accounting transactions
- It does not pay Corporation Tax while inactive
- You must still file annual accounts and confirmation statements
- HMRC must be informed of your company’s dormant status
What counts as ‘no activity’?
To remain dormant, your company must not carry out any significant accounting transactions. This includes:
- Buying or selling goods and services
- Paying employees or directors
- Receiving income, interest, or dividends
- Managing investments
- Paying business expenses through a company bank account
If any of these occur, your company will become active for Corporation Tax purposes.
There are a few exceptions. These do not affect dormant status:
- Payment for shares by initial shareholders
- Companies House filing fees
- Late filing penalties
Why keep a company dormant?
There are several practical reasons why a company may remain dormant:
- Protecting a company name or brand
- Reserving a name for future use
- Holding assets or intellectual property
- Pausing trading during a restructure
- Managing a temporary break due to illness or other circumstances
A dormant company can remain inactive for as long as needed, as long as filing requirements are met.
Your filing responsibilities
Even without trading, your company still needs to stay compliant.
Annual accounts
Dormant accounts must be submitted to Companies House each year. These are simpler than full accounts and usually include:
- A balance sheet
- Notes relating to the accounts
They must be filed within 9 months of your accounting reference date.
Confirmation statement
You must also file a confirmation statement at least once every 12 months.
This confirms that your company details are accurate, including:
- Directors and shareholders
- Registered office address
- SIC codes
- People with significant control
You have 14 days from the confirmation date to submit this.
Switching between dormant and active
If your company starts trading again, you must notify HMRC within 3 months.
You will need to provide details such as:
- Company name and registration number
- Start date of trading
- Nature of business activities
- Business address
- Accounting reference date
If your company becomes active, you will need to:
- Register for Corporation Tax
- Submit Company Tax Returns
- Pay any tax due
If applicable, you may also need to register for VAT or PAYE.
Making a company dormant
If your company has been trading and then stops, you must inform HMRC that it is now dormant.
You will still need to:
- Submit a final Company Tax Return
- Pay any Corporation Tax owed up to the date trading ceased
After this, HMRC will treat your company as dormant until activity resumes.
If you are VAT registered, you must also cancel your VAT registration within 30 days and submit a final VAT return.
Do you need a bank account?
To maintain dormant status, your company should not receive or spend money.
In most cases, this means closing your business bank account to avoid:
- Bank charges
- Interest payments
- Accidental transactions
Even small transactions can make your company active again for tax purposes.
Do dormant companies pay tax?
If your company is dormant for the entire financial year, there will be:
- No Corporation Tax to pay
- No requirement to submit a Company Tax Return to HMRC
However, if your company trades at any point during the year, you will need to:
- Report that activity
- Submit accounts and tax returns
- Pay tax on any profits
Need support with your dormant company?
Whether you are keeping a company dormant for future plans or preparing to start trading again, having the right support can make things much simpler.
At SMH Group, we can help you stay compliant, meet your filing deadlines, and plan ahead with confidence.
Get in touch with our team today by emailing info@smh.group or click here to see how we can support you.
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