How to make your trading company dormant

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Some companies are dormant from the day they’re formed. A lot of companies, however, will actively carry out a business for a while but then cease trading – at least for a period. These trading companies may be eligible to become dormant, a status which will reduce the company’s ongoing filing responsibilities. To become dormant, there are a number of things the company will need to do, which we’ll look at in this article.

First, though, it’s worth thinking about whether dormant company status is the right thing for your company and in another article we’ve looked at the main reasons why a dormant company will be maintained. You’ll need to be dormant for a full accounting period to be able to file dormant accounts, so dormant status won’t be attractive to a company if you’re definitely going to start trading again in just a few months.

You should also be confident that the best option isn’t just to dissolve the company: if you’re sure you won’t trade again in the future, there’s usually little benefit in keeping the company in existence. While dormant company status can greatly reduce the effort and cost involved in maintaining the company, there will still be some time and expenditure required.

What do I need to do for my trading company to become dormant?

To make an existing trading company dormant, you should:

  • Pay any outstanding bills and cancel any business contracts. These might, for example, include leases of buildings or equipment, insurance, utilities, telephone and internet services previously used.
  • Reconcile the amounts you’re due to receive from customers and ensure you’ve received all expected payments. You’ll need to terminate any agreements with customers to provide goods and services.
  • If applicable, pay any outstanding VAT due to HMRC and (usually) cancel the company’s VAT registration.
  • Pay any final wages due to employees and close the company’s payroll scheme.
  • It’s usually sensible to close down the company’s business bank account(s), in particular, to remain dormant the company must not receive any interest payments so any interest bearing account certainly needs to be closed.

The company can only be dormant going forward if no transactions pass through it, with very few exceptions as to which transactions are allowed. While tidying up all the above details might be time-consuming, it will provide something of a clean break. If, for example, you decide instead to continue paying for utilities or insurance, the company won’t be dormant in HMRC’s eyes and you’ll have to continue to file normal accounts.

How do I tell HMRC my company is now dormant?

To confirm with HMRC, you’ll need to write to your local Corporation Tax Office stating the date on which the company became or will become dormant. Their contact details will be on correspondence from HMRC.

HMRC will then send to your registered office address a ‘Notice to deliver a Company Tax Return’. This covers the period of business immediately before the company became dormant. You’ll need to complete and file the return and make a payment of any tax owed.

HMRC will usually confirm your dormant status in writing within about three weeks. From the date your company becomes dormant, HMRC will stop treating your company as active – this means that you won’t receive a lot of the correspondence from them you’ve had until now. In most cases, you also won’t need to contact HMRC until the company begins trading again (or you choose to dissolve it).

What about telling Companies House?

You do not have to inform Companies House that your company is dormant until it is time to submit your annual accounts. Remember that full accounts for the period up to the start of dormancy will need to be filed as usual. For the first full accounting period for which the company is dormant, however, you’ll instead need to submit simplified dormant company accounts to Companies House within 9 months of the company’s accounting reference date.  That can greatly reduce the administration of maintaining the company and is the reason many people make their companies dormant.

On an ongoing basis, dormant companies must continue to meet a number of other Companies House filing obligations, including:

  • The confirmation statement, which replaced the annual return from 30 June 2016 and which is different to the Accounts, must still be submitted.
  • When a new director or company secretary is appointed or terminated (or they change certain details like their name or service address), an appropriate form must be submitted.
  • Changes to the company’s registered office address or, if one exists, a SAIL address must be submitted on the appropriate form.

What if the dormant company then becomes active again?

Most dormant companies will become active again at some point in their lives. If your company become active (for example, by starting to trade), you must notify HMRC within three months. The easiest way is to use HMRC’s online registration service to inform them that the company is now active.

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