Company Formation
Dormant company: definition and advantages
Limited liability companies must be registered with the Companies House before they can begin operation. However, some companies register but do not commence business operations immediately. Others start but stop transacting business for some reason. The Companies House and HMRC consider these companies as dormant and this article will enlighten you on what a dormant company is and what it all entails.
A team of experts will get you the answers you need to get started with your business.
What is a dormant company?
The Companies House and the HMRC have different considerations for which they can consider a company dormant.
A dormant company, according to the HMRC, is a newly incorporated company that has not started trading or has started trading but stopped having no significant income for a period, a flat or property management company, or an unincorporated club or association with less than £100 debt on corporation tax payment.
According to the Companies House, however, any company that has not made any significant transaction during a financial year is dormant. Such significant transactions are excluding filing fees, late filing penalty fees, and incorporation shares payment.
How to make a company dormant?
- Inform HMRC of the date your company has or will be dormant via post or phone using your UTR number. You do not need to inform Companies House since it will be stated in your company’s annual accounts and confirmation statements anyway.
- Pay all outstanding debts of corporation tax and VAT to HMRC, salary, and wages to employees, and outstanding fees to suppliers.
- Close the company’s bank accounts since any transaction on the account except those classified as ‘insignificant’ by Companies House will nullify the dormant status.
- Keep filing annual accounts and confirmation statements to Companies House as when due.
Is it possible to make a dormant company active?
It is possible to make a dormant company active whenever you are ready to recommence business. If you have been filing your statement of accounts and confirmatory statements with the Companies House annually before, you do not need to inform the Companies House that your company is now active. The Companies House will be notified of the status of your company whenever you file the next reports with them; although this has to be within 9 months of reactivation.
If you have not been filing annual accounts and confirmation statements during the period of dormancy, you must do that and pay the late filing penalty fees within 9 months of your company’s year-end. The information required includes company’s name, registered office address or Single Alternative Inspection Location (SAIL) address, details of company directors, secretary (not compulsory), shareholders, and persons with significant control (PSCs), location of statutory company records, information regarding issued shares, and Standard Industrial Classification (SIC) code.
The HMRC on the other hand wants to know, within 3 months, that your company is back to business. You must therefore re register for corporation tax using your Government Gateway user ID and password.
If you don’t already have it (if you are a new company starting a business after a period of dormancy), you can create one on the HMRC portal. You will need company name and number, date of company reactivation, the accounting period for Corporation Tax, a company registered address, Standard Industrial Classification (SIC) code, and accounting reference date (ARD).
Also, pay any due corporation tax within 9 months and 1 day of your company’s year-end and also statutory tax returns or accounts within 12 months of your company’s year-end to HMRC.
Can a dormant company be a guarantor of another limited company?
It is possible. This is because even though the company is dormant, it still has to keep filing statements of accounts and confirmation statements at the end of every financial year to the Companies House. As such, it is still a legal entity recognised by the government, even though it is dormant.
Also, it is possible to set up a dormant company solely to stand as a guarantor to another company. In such a case, the dormant company must maintain the dormant status, i.e., no significant transaction must be carried out at any point in time. There is no reason to transact business anyway.
Therefore, if you are setting up a dormant company limited by shares or guarantee, the amount of guarantee or shares can be set up to match the amount you are guaranteeing for the other company. Paying out shares and guarantees from the dormant company coffers does not count as a significant transaction because those were available at the incorporation of the company.
However, such a dormant company must not receive any kind of payment either as an entity, or any of its directors, shareholders, or members. If it does, it loses its status as a dormant company.
Conclusion
It is okay to let your company go dormant if for any reason it cannot successfully transact business. However, whenever you reopen your doors to commence business, you must inform the right authorities.
What are the reasons to have a dormant company?
1. If you incorporated a company with the Companies House but chose to not start business immediately, your company is considered dormant.
You do not need to inform either the Companies House or HMRC if this is the case.
A team of experts will get you the answers you need to get started with your business.
