Taking a break – how to make your limited company ‘dormant’

There may be a time when you want to take a break from contracting or other business activity, whilst keeping your limited company in an ‘inactive’ state.

You may opt to keep a limited company dormant for a number of other reasons; to protect a brand, prevent the same name being registered by another business, or to secure intellectual property.

Even if a company is ‘dormant’, you still need to file accounts with Companies House every year. As the director of the company, it is your responsibility to ensure that accounts are submitted whether or not the company has been trading during the past financial year.

So when exactly is a company considered to be ‘dormant’ and what kind of information do you need to file to meet your tax obligations?

When is a limited company dormant?

For the company to remain dormant, however, no significant transactions or trading can occur during the financial year.

This includes buying and selling goods through the company, operating a payroll, issuing dividends, renting property, earning interest from a bank or paying bank charges on company transactions.

Any of the above activity will mean the company loses its dormant status.

A company can remain dormant indefinitely provided you fulfil the necessary filing/reporting obligations as required by HMRC

Dormant company accounts and confirmation statement

Dormant accounts should include a balance sheet and any relevant notes for the past financial year.

The company should submit their dormant accounts to Companies House every year, no later than nine months after the end of the company’s financial year.

You are also required to provide an annual confirmation statement for a dormant company every twelve months. This statement provides important company information such as the name and registered address of the company, directors’ details, the location of statutory records, shareholder or guarantor details, register of people with significant control, and information about share capital.

The due date for filing a confirmation statement for the dormant company is on the anniversary of the date the company was registered. You have 14 days from this date to file the confirmation statement.

This applies even if there is no change to the relevant details. Information provided in the statement to Companies House is available to be viewed by members of the public.

Personal tax

As director of a dormant company, you will still have to complete a self-assessment tax return to cover your personal tax position.

Dormant company bank account

It’s important to note that if a dormant company spends or receives money, it will forfeit its dormant status and be considered active and liable to pay corporation tax.

The simplest option is not to open a business account in the first place.

If you’re making an active company dormant (see below), you’ll have to formally close any existing account, ensuring that all bills, liabilities and bank charges are paid in full.

Remember to cancel any standing orders or direct debits and advise suppliers and clients that no further payments can be made into this account.

Any incidental costs for the dormant company such as accountant’s fees or incorporation costs can be paid for via your personal account.

Dormant company tax liability

As long as the company is inactive throughout the financial year you won’t have any tax liabilities and won’t have to file a tax return or prepare detailed accounts.

If the company ceases or starts trading during the financial year, you’ll be liable for tax on any income generated and will have to submit accounts and tax returns for the relevant period.

To make an active company dormant

If you want to make an active company dormant, you’ll have to contact HMRC (preferably in writing) who will issue you with a notice for a company tax return.

You’ll have to file the return and pay any tax liable on profits made before the company became dormant.

If you were registered for VAT, you should tell HMRC that you have stopped trading and want to cancel your registration.

You can do this in writing or by using form VAT 7. You’ll have to pay any VAT due and file a final VAT return.

To make a dormant company active

To make a previously dormant company active, you must inform HMRC within three months of the date you start trading.

You can do this by signing in to your account and registering the company as active. If the company hasn’t traded before, you can register online for corporation tax.

Partner Contractor Accountants

Last updated: 27th January 2024