Here we look at what this means in practice and explain how maintaining a dormant company need not be an administrative hassle. We also look at how keeping hold of a dormant company could be a sensible move for your business.
Why stay as a dormant company?
Let’s consider two scenarios where business owners are especially likely to choose to keep a dormant company, either in the medium or long term:
Putting matters on hold
There are lots of reasons why the owner of an existing company may choose to call a halt on trading. This could be down to a decision to shift focus to another venture for instance or to take time out for personal reasons. Does this mean that the company needs to be wound up? Not necessarily. Compared to dissolving the company and then having to apply to have it restored to the register if circumstances change, keeping it alive as a dormant company is a cost-effective and relatively easy way of leaving your options open.
Start-ups: protecting your reputation and putting everything in place
For entrepreneurs who are yet to make the shift to operating as a company, registering a company with the same name as your business stops anyone else from taking that company name. This prevents confusion for customers and a possible reputational blow for you. Maintaining the company as dormant also means it’s ready and waiting for when (or if) you decide you’d rather operate as a company.
In both situations there’s no time cap on this. So long as you keep on the right side of Companies House and HMRC you can maintain a dormant company indefinitely.
The golden rule for staying dormant: avoid significant accounting transactions
Companies House defines a dormant company as one that “has had no significant accounting transactions during the accounting period”. HMRC refers to a dormant company as “one that’s not active, not liable for Corporation Tax or not within the charge to Corporation Tax”.
Companies House goes a step further and sets out the only allowed transactions of a dormant company:
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.
Payment of a civil penalty for late filing of accounts.
If you are intentionally or unintentionally turning your dormant company active you will become liable for a full set of trading accounts and Corporation Tax assessment for the relevant period. To avoid this hassle the key is not to conduct any transactions through the company.
For sole traders who are setting up a dormant company for the future and/or to protect their name it’s a case of ‘business as usual’. You should continue to trade as before and make sure you don’t use the dormant company for any transactions.
For active companies that wish to become dormant it’s a matter of winding down existing financial arrangements. Typically, this involves making sure that all existing customers are aware that you are ceasing trading through the company and terminating any outstanding contracts. The payroll must be closed and a set of final accounts needs to be drawn up, including payment of any outstanding Corporation Tax.
Be especially careful with bank accounts as a “significant accounting transaction” includes an interest payment or bank charge no matter how small.
Dealing with Companies House
First, the bad news: dormant companies don’t escape the annual filing obligations required of all companies.
Now, the good news: these requirements are actually pretty straightforward. After all, there is essentially nothing happening with a dormant company, which means there’s very little in the way of substantive information to deal with. Online filing is a real timesaver too. With WebFiling most of the forms are auto-completed for you and there’s no possibility of the forms getting lost in the post.
There are two parts to your basic filing requirements each year:
Dormant company accounts. A form consisting of a balance sheet, which shows that the company has not been involved in any significant transactions for the accounting period.
The annual return. A standard form AR01 which gives a snapshot of current information concerning your company. There’s a charge of £13 if you file this online, or £40 by post.
In addition, if you appoint a new director to the company you need to complete and file form AP01. If a director resigns from the company notification should be given to Companies House using form TM01, but you must be careful to ensure that the company has at least one director at all times. Notification of a change of registered office address for the dormant company is dealt with by submitting form AD01. These notifications should be given within 14 days of the change (it’s quicker and easier to file the relevant forms online).
Dealing with HMRC
HMRC is notified automatically once a new company has been formed. Shortly afterwards HMRC will be in touch with an “Information for new companies” pack. Complete the special form for dormant companies ‘CT41G – Dormant Company Insert’. If the company starts trading you must notify HMRC within 3 months.
Dormant companies are far from ‘high maintenance’ commitments. Want to find out how setting one up is much easier than you think? Check out our formation packages.