The majority of companies actively trade, but there are a number of circumstances in which a company may be considered dormant.
A company can be dormant from the moment it’s formed or an existing trading company might become dormant at a later date.
Dormant companies benefit from reduced administrative requirements
Dormant companies don’t have to provide the same level of detail in their accounts. While that’s hardly a reason in itself, there are a number of good reasons why a dormant company may be formed or maintained.
What is the definition of a dormant company?
Dormant can be defined differently depending upon who’s point of view you are looking from; a company may have dormant status with for corporation tax purposes with HM Revenue & Customs, but it may not meet the stricter definition applied by Companies House.
HM Revenue & Customs (HMRC)
Companies are considered dormant for corporation tax purposes in any of the following circumstances:
They are not trading and receive no other income, including investment income.
They are a new limited company that hasn’t started trading yet.
They are a flat management company.
They are an unincorporated association or charity that owes less than £100 corporation tax.
If a company is considered to be dormant by HMRC, it will not need to submit a corporation tax return.
Companies House
Companies House have a much stricter definition of dormant. As far as Companies House are concerned, a dormant company is one that has had no significant accounting transactions during the accounting period. A ‘significant’ accounting transaction is defined as one that the company should enter in its accounting records.
Provided no such transactions occur during the financial period then the company can have dormant company status and only has to submit ‘dormant’ accounts, which are much simpler than full accounts. As well as the accounts, it is worth noting that dormant companies still need to submit a confirmation statement to Companies House every year.
Care must be taken here though, as almost all financial transactions must be reported in the company accounts. In fact, Companies House has defined only the following transactions that the company may put through their records and still submit dormant accounts:
Fees paid to Companies House
Payment of a civil penalty for late filing of accounts
Payment for shares by the subscribers to the memorandum of association
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
