A dormant company is registered with the Companies House, but has had zero business activity during the period of an accounting year. These companies are inactive since no trading activity has taken place throughout the period. Therefore, administrative requirements for dormant companies is quite negligible.
In the absence of any business transaction after a company formation, the HMRC (Her Majesty’s Revenue and Customs) considers it to be dormant. A company can also attain dormant status after a certain period of activity.
Requirements of Dormant Companies
Dormant companies are not required to be notified with the Companies House, but dormant accounts need to be filed every year. Dormant accounts include an abbreviated balance sheet and relevant notes. These should be forwarded to the Companies House within 9 months of the end of the company’s financial year.
Additionally, an annual return must also be filed every year for any company, be it dormant or active. It should be filed within 28 days of the date of the company formation every month. The annual return generally contains the details of the company which include the name of the company, registered address, details of the director, details of shareholders and so on. This information is solely used for the purpose of confirming the details that are contained in the public records.
A company that has been dormant since its incorporation is exempt from:
- filing a profit and loss report
- filing a corporation tax return
However, if the company was involved in trading before attaining the dormant status, then a tax return must be filed with the HMRC to cover the period of activity before the company ceases to trade. In addition, it is also required to find out and pay the corporation tax the company owes for its period of activity.
Dormant Companies and Bank Accounts
Since no business transaction takes place in a dormant company, a bank account is not necessary. If your company has been active for a certain of time before attaining dormancy, then it is recommended to close the bank account associated with it after paying off any pending bills or any liabilities. This is because, any transaction carried out through that bank account, no matter how small it is, could result in the forfeiture of the dormant status of your company. In that case, your company would be treated as an active company and you would be required to follow the regulations stipulated for such companies.
Only the following transactions can be carried out through a business bank account of a dormant company:
- Fees for filing annual return to the Companies House
- Fees for changing the name of the company
- HMRC penalty fees for late filing
- Company share payments for the first shareholders
If you wish to resume trading after a period of dormancy, you can always open a new bank account for your company.
Changing the Status of the Company from Active to Dormant
A company can only be dormant if no transaction takes place under its name. Therefore, to change the trading status of your company you need to pay off all outstanding bills and reconcile any amounts that you are supposed to receive from your customers. Additionally, if you have previously made any agreement with your customers regarding the services and/or products your company provides, then you would need to terminate that as well.
The next step is to contact your local corporation tax office to notify the date from which your company is going to become dormant. You would receive a notification stating the acceptance of your company’s dormant status. This completes the process.
Changing the Status of a Company from Dormant to Active
To restart a dormant company, you will need to notify the HMRC within 3 months of initiating business transactions. If your company has been dormant since its incorporation, you would need to register it with the HMRC. For this, you would need to provide information regarding your company which include the following:
- Name of your company
- Company Registration Number (CRN)
- Standard Industrial Classification SIC) code
- Accounting Reference Date (ARD)
Once the HMRC receives all relevant information, it will be added to the record.
Having a dormant company has a number of benefits. Apart from the fact that it does not have to provide thorough details of their accounts, it serves a number of purposes like setting up a company with the intention of using it in the future, holding a fixed asset and so on.