There may be good reasons why you want to set up a company, but not necessarily trade for the time being. You may decide to take a break from contracting, but keep your company ticking over. This is where the concept of a dormant company comes into play.
What is a dormant limited company?
One important thing to note is that a ‘dormant’ company is simply a standard UK limited liability company which is not actively trading and has no significant financial activity. It is not a separate type of legal entity.
Dormant companies are often incorporated for future business reasons or to protect a specific company name, brand, or intellectual property (IP).
In this guide, we look at what a dormant limited company is, the advantages and disadvantages of owning one, how to maintain dormant status, and some useful links to find out more.
Why would you have a dormant company?
There are several reasons why individuals and businesses may maintain a company in a dormant state:
Keeping a dormant company until you’re ready to trade
You can incorporate a company and maintain its dormant status to protect the name or if you are considering using a limited company in the near future.
Temporarily suspending business operations
If you are already trading through your own company, you might also choose to make your company dormant if you want to stop trading and wish to keep the option of using the company again in the future. This removes the need to undertake the administrative procedures associated with permanently closing a company.
Switching between limited and umbrella
This situation may arise if you choose (or are forced) to use an umbrella company for a period of time, or if you plan to take an extended break from the contracting world for any reason.
Holding assets or protecting IP
Some individuals or organisations establish dormant companies for the purpose of holding assets or intellectual property rights. This provides a level of legal protection and creates a separation from any active businesses.
Sole traders protecting a company name
If you are a non-contractor, operating as a sole traders (i.e., ‘self-employed’), you might want to register a limited company version of your trading name, even if you are not yet prepared to conduct business through the company.
How to file dormant company accounts with Companies House
Once you have told HMRC that your company is in a dormant state, the company no longer needs to pay Corporation Tax, or file subsequent Company Tax Returns.
However… the company must still file Annual Accounts with Companies House. This consists of a balance sheet and any relevant notes, There is no requirement to file a profit and loss account, or directors’ report.
You should be aware that dormant companies have the same annual accounts filing deadlines as trading companies.
You (or your accountant) can file dormant accounts via WebFiling on the Companies House site.
Here’s a great 3 minute video which shows how to submit dormant company accounts via Companies House.
If your company is dormant, and has never traded, its annual accounts can be submitted via paper Form AA02 (see here).
However, Companies House warns that “…it takes much longer to process paper documents sent to us by post.”
The AA02 option is not open to companies which have traded previous to becoming dormant.
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.
More things you should know when you have a dormant company
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, as well as submitting annual accounts.
You must still complete your company’s Confirmation Statement and file it with Companies House.
Informing Companies House of any ongoing changes
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.
No transactions while company is dormant
Whilst the company is dormant, you must not generate any accounting transactions.
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.
As a company director, you are ultimately responsible
As a dormant company director, you can still be prosecuted if you don’t submit documents to Companies House within the prescribed deadlines. Even if you have an accountant, make sure you know what your company’s statutory deadlines are.
- 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 – Accounting Requirements.
- 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.