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A dormant company is one that doesn’t trade and doesn’t have any accounting transactions. This can be useful for limited companies who are stopping trading for a period of time, or for protecting business interests when operating as a sole trader, or thinking of becoming self-employed.

Can a dormant company enter into a contract? Find out more here…

Dormant Company Rules

The only allowed transactions of a dormant company defined by Companies House are:

  • Fees paid to the Registrar of Companies for a change of name, re-registration, and filing annual returns
  • Payments for shares taken by subscribers to the memorandum of association
  • Payment of a civil penalty for late filing of accounts

HMRC’s definition is slightly different and considers dormant companies to be:

  • A new company that hasn’t begun trading
  • A company held by a foundation ready to be sold on
  • An existing company that isn’t trading but has traded in the past
  • A company that will never trade as it’s been formed to hold an asset such as property

Dormant Company Benefits

Dormant company registration can be advantageous in offering security benefits whilst protecting a brand name or trademark. The limited company can be registered to secure the name so by the time you want to begin trading the company has a few years behind it –which is very useful when entering into contracts – as an older company has more respect and standing.

In practice, a contractor must not enter into any new contracts using a dormant limited company. Contracting may be re-started if the business starts up again in the future. If in any doubt you should contact solicitors who specialise in dormant company regulations.

Overtime, only very small payments for annual filing and dormant accounts will be incurred. Some management companies remain dormant for the purpose of owning the lease or freehold of a property, setting up residential associations to deal with any outgoing expenses.

Preparing for Dormant Status

The following steps should be taken:

  • Hastening outstanding invoices
  • Preparing final trading accounts
  • Filing outstanding tax returns
  • Closing the payroll and bank accounts
  • Terminating service providers contracts

Dormant Company Accounts

Even when the company is dormant a level of company administration must be maintained for things to stay legal. Accounts for a dormant company must include:

  • The verified company name and number in full
  • A balance sheet dated the same as the accounting year

Confirmation of:

  • Called up share capital due to the company from shareholders
  • Cash held by the company
  • The company’s net assets
  • Any share capital issued to shareholders
  • Approval by directors with date and signatures

Avoidance of Penalties

You can be prosecuted for not submitting documents to Companies House on time. And failure to do so is actually a criminal offence. A simple way to avoid late submission is to employ trusted outsourced bookkeeping services.

Reputable tax accountants in London will ensure you comply with Companies House annual accounts requirements – preparing and filing your Confirmation statement on time and helping you with informing HMRC. A team of qualified accountants providing bookkeeping services in London will assist with every aspect of preparing your dormant company accounts.