A dormant company is a UK limited company that is registered at Companies House but is not doing business. Under company law, a company is dormant during any period in which it has no significant accounting transaction (section 1169 of the Companies Act 2006). HMRC applies its own test for Corporation Tax: the company has stopped trading and has no other income. A dormant company still has to file annual accounts and a confirmation statement every year, but if it qualifies it can file simple dormant accounts with no audit.
Two definitions: Companies House and HMRC
"Dormant" means different things to the two bodies, and a company can be dormant for one and not the other.
- Companies House (company law). No significant accounting transaction in the financial year. That means no transaction that section 386 requires to be entered in the accounting records;
- HMRC (Corporation Tax). No trading and no other income, for example from investments. GOV.UK lists buying, selling, renting property, advertising, employing someone and getting interest as trading activity.
The difference matters in practice. Section 386 requires the accounting records to show "all sums of money received and expended by the company". So a company that has stopped trading but still pays a final supplier invoice or a bank charge has a significant accounting transaction. It has no income and may be dormant for Corporation Tax, but it is not dormant for Companies House purposes that year. HMRC can also decide on its own to treat a company as dormant and will write to tell you when it does.
Transactions that do not break dormancy
Section 1169(3) lists the transactions that are ignored when deciding whether a company is dormant for company law:
- Subscriber shares. Payment for shares taken by the subscribers when the company was formed;
- Change of name fees. The registrar's fee for changing the company's name;
- Re-registration fees. The registrar's fee for re-registering the company;
- Late filing penalties. Penalties for filing accounts late under section 453;
- Confirmation statement fees. The registrar's fee for registering a confirmation statement.
Anything else, such as a supplier invoice, a director's expense claim paid by the company or a bank charge debited to a company account, is a significant accounting transaction and ends dormancy for that year.
What a dormant company still has to do
- Annual accounts. These are due nine months after the end of the accounting reference period for a private company. A company that is dormant and qualifies as small can file dormant accounts online. Paper form AA02 is only for a company limited by shares that has never traded and whose only transaction is the issue of subscriber shares;
- Confirmation statement. At least one every 12 months. The fee is £50 online or through software, or £110 on paper;
- Identity verification. Directors and people with significant control must still verify their identity with Companies House, even when the company is doing nothing;
- Registered office and records. The company must keep an appropriate registered office address and a registered email address, and report changes within the usual deadlines.
Section 480 exempts a dormant company from audit if it has been dormant since formation, or since the end of the previous financial year and it qualifies for the small companies regime. Traded companies, banks, insurers, e-money issuers and certain investment firms are excluded under section 481.
Corporation Tax, VAT and PAYE when dormant
Once you have told HMRC the company is dormant, it does not have to pay Corporation Tax or file Company Tax Returns, unless it receives a notice to deliver a Company Tax Return. If a notice has already been issued, you must still file a return for that period, which will show nil.
- VAT. If you do not intend to trade again, you must deregister within 30 days of the company becoming dormant. If you plan to restart, you file nil VAT returns;
- PAYE. If you do not plan to restart trading in the current tax year, close the PAYE scheme.
Worked example
Maya forms a company in March to hold a future software business. She pays £100 for the subscriber shares, and nothing else happens before the first year end. The share payment is disregarded under section 1169(3), so the company is dormant for Companies House purposes. It files dormant accounts without an audit, pays the £50 confirmation statement fee (also disregarded), and tells HMRC it has not started trading. In year two, Maya opens a company bank account that charges a £5 monthly fee. Those charges are significant accounting transactions, so the year two accounts cannot be dormant accounts, even though the company still has no trade.
Dormant or closed?
GOV.UK confirms that you can keep a company dormant for as long as you want. Dormancy keeps the name and the company number available for future use, but the annual filings and verification duties continue. When a company has no future use, closing it is usually cleaner. See our guide on how to close a limited company. You do not need to tell Companies House when you restart trading, because your next non-dormant accounts will show it.
Sources: Companies Act 2006 s1169, s480, s481 and s442; GOV.UK, Dormant companies and associations; Companies House, Companies House fees and File your dormant accounts (AA02). See also how to file a confirmation statement.
Acumon files dormant and micro-entity accounts and keeps confirmation statements on schedule through our company secretarial service.