The definition of a dormant company is one that is not trading or receiving any kind of income from trading. The company must be officially registered with Companies House and can be dormant from the date of incorporation or after the start of active trading.
Keeping your limited company in an inactive state may be done for a number of reasons as seen below. But you will still need to file accounts with Companies House annually.
Dormant Company Data
Companies that are considered inactive won’t be involved in any kind of trading activity which includes:
- Purchasing or selling of goods and services
- Employing members of staff
- Managing investments
- The buying or leasing of property
- Paying the director’s salaries
- Receiving dividend payments
- Issuing shareholder dividends
- Earning interest
- Paying bank charges and fees
- Using the business bank account to pay legal or accounting fees
There are certain transactions which can continue to be carried out by a dormant company and these cover:
- Payment of shares by the first shareholders joining the company at the time of incorporation
- Fees paid to Companies House for filing an annual confirmation statement, or changing the company name or re-registration of the business
- The payment of any late filing fees to Companies House
All of these requirements can be discussed with a reputable accountant in London to ensure that any penalties will be avoided.
Reasons for a Limited Company to be Dormant
A limited company can be dormant for a number of reasons and can remain dormant without a time limit although there are expenses associated with keeping the company on the official register. Explanations include:
- Protecting a brand name or trademark
- Preventing a company name being registered by another business
- Reserving a company name for future use
- Restructuring an existing business
- Holding assets or intellectual property
- Temporarily ceasing trading due to illness or death of the business owner
Dormant Company Requirements
To make an active company dormant you need to contact HMRC who will issue you with a notice for a company tax return. You have to file the return and pay any tax liable before the company became dormant. You should also inform HMRC if you were registered for VAT so that you can stop trading and cancel your registration. You will have to pay any VAT due and file a final VAT return.
An annual confirmation statement must be prepared at least once a year. This statement will verify the following:
- Name and registered number of the business with the registered office address
- Location of statutory records
- Details of shareholders or guarantors
- Information about share capital
You can take the stress out of filing this statement – which includes a snapshot of important company details – by employing a small business accountant in London to take care of it for you.
Can a dormant company pay dividends?
A dormant company can’t pay dividends to shareholders without losing dormant company status, but there are several tax-efficient ways to remove any money left in the company by:
- Repaying outstanding loan balances to shareholders or directors
- Making pension contributions on behalf of the directors
- Paying shareholders a final dividend figure
All options have legal requirements and enlisting the help and advice of a personal tax advisor is highly recommended.