What is a Dormant Company?
A dormant company is one that’s not actively trading or carrying out any business activities. Essentially, it’s "sleeping." In the UK, Companies House considers a company dormant if it has had no significant transactions during a financial year.
What Counts as a Significant Transaction?
Significant transactions include things like:
- Buying or selling goods or services.
- Paying salaries or wages.
- Earning interest or receiving dividends.
- Purchasing assets.
However, some things don’t count as significant, such as:
- Paying the company’s incorporation fee to Companies House.
- Paying for shares issued during incorporation.
- Late filing penalties from Companies House.
If your company only deals with these non-significant transactions, it might still qualify as dormant.
Why Would a Company Be Dormant?
There are several reasons why a company might be dormant:
- Future Plans: You might set up a company now to use later, ensuring the name is reserved for you.
- Temporary Pause: A company may pause operations for strategic or financial reasons.
- Holding Assets: Some companies are set up to hold intellectual property or assets but don’t actively trade.
Do Dormant Companies Still Have Legal Obligations?
Yes! Even if your company is dormant, it still has to meet certain legal requirements, including:
Filing Dormant Company Accounts:
You need to submit annual accounts to Companies House. The good news is that for dormant companies, these accounts are simplified and can often be filed online in minutes.
Confirmation Statement:
You must also file a confirmation statement yearly to update Companies House with the company's basic information (e.g., address, directors, and shareholders).
Corporation Tax:
If your company is dormant, you don’t need to pay Corporation Tax or file a Corporation Tax return. However, you must notify HMRC that the company is dormant.
Registered Office Address:
You still need to maintain a registered office address in the UK, even if the company isn’t active.
How Do You File Dormant Company Accounts?
Filing dormant accounts is straightforward:
- Log In to Companies House Online: Use the online portal for a quick process.
- Select Dormant Company Accounts: Follow the step-by-step guide to confirm no significant transactions occurred.
- Submit Before the Deadline: You must file your accounts within nine months after the company’s financial year ends.
What Happens If You Don’t File?
Failing to file dormant company accounts or other statutory documents can lead to penalties:
- Late Filing Fees: These start from £150 and increase the longer you delay.
- Company Strike-Off: Companies House might remove your company from the register if you fail to meet your obligations.
Can a Dormant Company Become Active Again?
Absolutely! A dormant company can "wake up" at any time. To do this:
- Inform HMRC that your company is now active.
- Start trading, making transactions, or conducting business activities.
- File full statutory accounts instead of dormant accounts at the next filing deadline.
Why Keep a Dormant Company?
- Protect a Name: You can secure your brand name for future use.
- Low Maintenance: Dormant companies have minimal costs and paperwork.
- Flexibility: When you're ready, you can reactivate it and start trading.
Common Questions About Dormant Companies
Q: Do I need an accountant for a dormant company?
No, you don’t need an accountant for filing dormant accounts. The process is simple enough to handle on your own. However, professional advice can be useful if you're unsure about your obligations.
Q: Can I keep a business bank account for a dormant company?
Yes, but if you use it to make or receive payments, the company may no longer qualify as dormant.
Q: How much does it cost to keep a dormant company?
Typically, the only costs are for maintaining the registered office address (if you use a service) and any professional help you may need.
Conclusion
Dormant company accounts are a way to keep your business "on hold" while meeting your legal obligations. Whether you’re pausing operations or planning for the future, understanding the rules ensures you stay compliant and avoid unnecessary penalties.
If you’re still unsure, it’s always worth consulting a professional accountant or reaching out to Companies House or HMRC for clarity. Managing a dormant company might seem like a small task, but doing it right will save you headaches down the road!