Dormant company status at Companies House and HMRC – what’s the difference?

A dormant company is a registered company that is not trading or receiving any form of income. However, the term ‘dormant’ means different things at Companies House and HMRC, so it’s important to understand their respective definitions.

Below, we take a look at these different definitions at Companies House and HMRC, the filing obligations of a dormant company, and the most common reasons why companies become dormant.

Dormant company status at Companies House

A company is deemed dormant at Companies House if it has no ‘significant’ transactions within a financial year.

Significant transactions include all forms of income and expenditure (even bank account fees, charges, and interest), apart from:

• filing fees paid to Companies House
• penalties for late filing of annual accounts
• money that the subscribers (first shareholders) paid for their shares when the company was incorporated

If your company is dormant, you will still be required to report changes and deliver confirmation statements and annual accounts to Companies House.

However, if your company also qualifies as ‘small’, you can file dormant company accounts (rather than full statutory accounts) at Companies House. These are simplified (‘abridged’) accounts and they do not have to be audited.

See also: Dormant company accounts explained

If your dormant company becomes active at some point in the future, Companies House will be made aware of this change of trading status when you file your next set of (normal) annual accounts.

Dormant company status at HMRC

A company is usually dormant at HMRC (aka dormant for Corporation Tax) if it:

• is newly registered and has not yet started to trade
• has stopped trading after a period of activity and receives no other income (e.g. investments, interest, capital gains)
• operates as a flat management company
• is an unincorporated club or association that owes less than £100 of Corporation Tax

HMRC’s definition of ‘trading’ is wide-reaching and includes the following types of business activities:

• buying goods and services
• selling or providing goods and services
• managing investments
• renting premises for business purposes
• advertising the company
• employing people and operating payroll
• paying the company directors
• earning interest on funds in the business bank account

However, there are certain preliminary activities and expenditure related to setting up a business that HMRC does not classify as ‘trading’. These include things like writing a business plan, negotiating contracts, and incurring costs when deciding whether or not to start the business.

Tell HMRC that your company is dormant

If your company is dormant for Corporation Tax, you must notify HMRC as soon as possible. To do this, you will need to provide:

• the registered name of the company
• your company’s Unique Taxpayer Reference (UTR)
• the date on which your company stopped trading (if it was previously trading)

At Rapid Formations, we have created a free Dormant Company Notification Letter Template. You can download and complete this letter to tell HMRC that your limited company is dormant for Corporation Tax.

Unless HMRC sends you a ‘Notice to deliver a Company Tax Return’, you won’t have to file a Company Tax Return or annual accounts with HMRC until your company begins trading.

If and when your company does start to trade, it will become ‘active’ for Corporation Tax. You must notify HMRC within 3 months by registering (or re-registering) for Corporation Tax. You can do this using HMRC’s online registration service.

Why would a company be dormant?

There are many reasons why a company may be dormant for a certain period of time, or even for its entire existence. The most common reasons include:

• registering a company name to use at some point in the future
• holding fixed assets, such as land or property
• protecting the name of an unincorporated business (e.g. a sole trader or traditional partnership structure)
• restructuring a company
• taking a break from trading for professional or personal reasons

You don’t have to tell Companies House or HMRC why your company is dormant.

How long can a company stay dormant?

There is no limit to how long a company can remain dormant. It can be any length of time, from a few months to the entire lifetime of the company.

You simply need to meet your statutory filing and reporting requirements for Companies House and HMRC, as outlined earlier in this post.

So there you have it…

We’ve explained what dormant company status means at Companies House and HMRC, provided a brief outline of the filing and reporting requirements, and listed the most common reasons why a company may be dormant for any length of time.

If you have any questions about this topic – or about limited companies in general – please contact us or leave a comment below.