There may be good reasons why you want to set up a company, but not necessarily trade for the time being… or you may decide to take a break from contracting, but keep your company ticking over. Here we explain what a ‘dormant’ limited company is, and what responsibilities you have as a company director.
What is a dormant company?
Before we start, it is worth noting that a ‘dormant’ company is simply a standard limited liability company which is not actively trading.
There are several reasons why contractors may have a company in a dormant state:
- You may choose to incorporate a company and keep it dormant in order to protect the name, or simply if you are considering using a limited company in the near future.
- If you’re already trading via your own company, you may also decide to make your company dormant if you intend to cease trading, and may want to use the company again in the future. This means you don’t have to go through the administrative processes involved in closing a company down for good.
- This might happen if you decide to use an umbrella company scheme for a period of time, or if you’re are taking a prolonged break from the contracting world for whatever reason.
- For non-contractors, who are sole traders (i.e. ‘self employed’), you may want to secure a limited company version of your trading name, even if you’re not yet ready to conduct business via the company.
Dormant Limited Company Responsibilities
There are no time limits to how long you can keep a limited company in ‘dormant’ mode, but there are a number of tasks you are still obliged to carry out:
1. You must still complete an Annual Return and file it with Companies House.
2. You must still file Annual Accounts with Companies House, consisting of a balance sheet and any relevant notes, however, here is no requirement to file a profit and loss account, or directors’ report. You can file your accounts via a simple WebFiling form on the Companies House site. Although you may still incur some accountancy costs to produce these scaled-down accounts, you will pay significantly less than you would to file an active company’s accounts.
You should be aware that dormant companies have the same annual accounts filing deadlines as trading companies.
3. For companies which have never traded, their annual accounts can be submitted via Form AA02 (see a PDF here). Companies who have previously traded, but have since become dormant may also be able to use Form AA02, but only if no transactions have been recorded in the current financial year and no residual balances exist. Again, this form can be filed online. You can, of course, file Form AA02 online, via Companies House.
4. Whilst the company is dormant, you must not generate any accounting transactions.
5. You must still inform Companies House of any changes to company personnel (new appointments, resignations, changes to names / addresses), or If you change your company’s registered address.
6. The only allowable transactions for dormant companies 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.
7. As a dormant company director, you can still be prosecuted if you don’t submit documents to Companies House within the prescribed deadlines.
- There is no time limit for a company to remain in a dormant state, as long as its directors meet their annual reporting obligations.
- You can read a complete guide to dormant companies on the GOV.UK site in Life of a Company – Part 2 (GP2).
- If you are currently contracting via a limited company and want to make it dormant, make sure you discuss the process with your accountant first.