Is your company REALLY dormant?

Is Your Company Dormant?

A dormant company is essentially one that doesn’t trade and has no transactions.

Companies House describes a dormant company as: “…if it has had no ‘significant accounting transactions’ during the accounting period. A ‘significant accounting transaction’ is one which the company should enter in its accounting records.”

WARNING! Many “dormant companies” with bank accounts will often (even if not trading) incur transactions such as bank charges and companies house filing fees which may affect the dormant nature of your company or the ability to file dormant accounts with Companies House.

Companies House states that allowable transactions when filing dormant company accounts are:

  • Payment for shares taken by subscribers to the memorandum of association
  • Fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns; and
  • Payment of a civil penalty for late filing of accounts.

HMRC refers to a dormant company as: “… a company that’s not active, not liable for Corporation Tax or not within the charge to Corporation Tax.” and gives examples of acceptable dormant companies as follows;

  • A new company that hasn’t begun trading yet
  • An existing company that has traded in the past, but is not currently trading
  • A company that will never trade because it has been formed solely to hold an asset such as property.

Time Limits?

There is currently no time limit on how long a limited company can currently remain as “dormant”.

Managing your dormant company

Dormant companies are relatively easy to administer – statutory filing requirements are as follows:

  • A set of dormant financial statements be filed with Companies House on an annual basis
  • A companies house annual return to be filed each year
  • A CT600 corporation tax return to be filed with HMRC (although if you contact HMRC in writing explaining that the company IS dormant, they will often waive the requirement of a corporation tax return until trading begins).

WARNING! Even though the company is not trading, late returns and filings will incur the same fees, penalties and repercussions as a “live” trading company.

Accountancy fees for managing a dormant company are relatively minor, for example, FD Analytical currently charges an annual fee of £85.00 to maintain and protect your limited company.

Why Create a Limited Company…..if it is dormant?

There are a number of answers to this, and the answer typically falls into one of three categories:

  • Company name protection: if you form your limited company with the name “XYZ Limited” this name is protected – nobody else can obtain this name OR trade as “XYZ Limited”. This may be particularly useful if you trade as a sole trader and don’t want a competitor to take a similar (or the same name) and capitalise on your brand and goodwill.
  • Intention to trade: many entrepreneurs will have an idea for a new product, design or business and wish to “start the process” of creating this entity, the company formation is clearly the first step (and a minor one!) but non-the-less begins the process. Additionally, the annual filing requirements are good reminders of the idea that you had and that you need to take forward. This is often the case with internet based companies and directors who wish to secure a domain name and perhaps the same company name e.g XYZ.com Limited
  • Company history: your company history begins as soon as the company is incorporated (or “formed”) when starting a new company if it was only recently formed, this can sometimes create difficulties when, for example, pitching for business – you would like to project the image that your business is well established, but it is difficult to do this if the company was only formed 6 weeks ago! Forming the company early on in the process, and maintaining as dormant can assist with this process.

For more information on limited companies – visit FDAnalytical.com