Dormant Company Guide

Dormant Company Guide

What does it mean when you have a Dormant Company?

A company is said to become dormant when it does not have any form of relevant or important accounting transactions in a specific accounting period.

In this manner, a significant accounting transaction can be deemed as one which a company is expected to enter into its accounting records.

Your company falls in this category if it is not conducting any business transactions as well as not having any other source of income involving the following:

  • Buying and selling
  • Acquiring property through renting or purchasing
  • Use of payroll
  • Disbursing salaries to directors
  • Issuance and receiving of dividends
  • Gaining interest
  • Payment of bank charges and other fees
  • Making payments for the company’s formation costs and accounting via the business bank account

On the other hand, if your company makes some sort of transaction, it automatically ceases to be dormant and instead, it is considered liable for corporation tax purposes.

However, the following activities pertaining to your company are not regarded to be important in relation to accounting transactions so the dormant company can carry out the following:

  • Paying of shares by the initial shareholders at the moment when the company was incorporated.
  • Paying of fees to Companies House for filing annual tax returns or when the company is taking a new name.
  • Filing of late penalties as required to Companies House.

What is the status of a dormant company?

There are numerous reasons why a company can be dormant:

• To safeguard the name of your company before launching the business

• To make some restructuring to the previously active business

• When the company owner needs an extended time to attend to personal issues

In this case, settling for the dormant status of your company is the only workable solution to protecting the business name and the legal aspect of the company.

This is the only option for your company rather than choosing to wind up or close it down and incorporate it again some other time.

The concept is common for construction and real estate companies. For example you can incorporate your company and buy some property as a future form of investment at low rates, before acquiring the status of a dormant company.

What are the conditions you should fulfill when applying for a dormant status?

The following are some of the most crucial conditions you are required to fulfill prior to applying for the dormant status of your company:

  • Your company should be free of any inspection or investigation carried out for legal reasons

  • The company should not be in any situation regarding outstanding public deposits or in any default of payments and interest

  • The company should not be under any pending prosecution as far as the law is concerned

  • Your company should be free of workmen’s payment default

  • The company should not have an outstanding payment to the central government or local authorities in terms of taxes, dues, & duties among others

  • The application for the status should not be a way to deceive creditors or defraud other parties

  • The securities of your company should not have been enlisted on any stock exchange within or outside the country

  • The company should not have any pending loans to be cleared. But you can apply for your company dormant status after you have obtained a 'no objection' certificate from the lender

  • There should be no dispute over your company's management or ownership. Therefore, a certificate is required from the management regarding this issue.

What are the Business Transactions a company can carry out after acquiring dormant status?

Despite acquiring dormant status, the company can still undertake the following business transactions:

• Your company can still make payment of fees to the registrar (Companies House)

• Those payments must fulfill the requirements of the law in relation to the company

• Allotment of shares

• Making payments to maintain the company’s assets and records

How do you make your company dormant?

To begin with, you need to register your company as dormant. Simply speaking, you have to change the trading status of your company from active to dormant.

In this case, you need to reach out to your local HMRC corporation tax office and make your request in writing giving the exact date indicating when the company will be dormant.

In the next two weeks, you should receive feedback by post sent to the company's registered office address stating the acceptance of your company dormant status.

Alternatively, if the company in question was previously trading, you will get a notice to submit your company tax returns after consulting with your local corporation tax office.

This task must be completed during the corporation tax accounting period before the company becomes dormant and should be submitted online to HMRC.

In addition, you will need to make any outstanding payments of corporation tax that the company owes from profit during that period.

Prior to declaring the company's dormancy, you have to ensure that all pending bills are cleared including salaries, wages, dividends, and direct debits from service providers.

Also if your company is owed any cash from your clients, it is advisable to make arrangements for having those accounts settled as soon as possible.

Once you have fulfilled all of these, you don't have to worry about getting in touch with HMRC again until the company starts trading.

How do you make your company active?

When you'd like to start your business up again and make your company active, you can contact HMRC within three months of making any kind of business transaction.

If you don't make the deadline, you must register your company for the online corporation tax service by creating a Government Gateway Account.

Consequently, HMRC will need you to provide the following vital information:

  • Your company's name
  • Registration number of your company
  • The date when your company became active
  • Your company’s address
  • The nature of your company (what type of services it provides)
  • Your company’s Accounting reference date

On the other hand, there is no need for you to inform Companies House when your dormant company changes to being active again.

You can only give information on its active trading status when filing your next annual accounts and Confirmation Statement.

Need help setting up a company?