If you are the owner of a company that is considered dormant, there are a few substantial accounting principles and procedures that you need to be aware of and follow. There are several definitions of a dormant company and a couple of specifics that you need to understand. That’s why in this article, we share with you the dormant company definition and what your next steps should be after you’ve engaged in making a limited company dormant. Let’s take a closer look.
What is a dormant company for tax purposes?
Every trading company needs to pay tax. But what is the case in the event of a dormant company? First, let’s look at the definition of a dorman company for tax purposes. This will be the case if you have a company that is neither trading nor receiving any income (including investment income). Another set of rules also states that a dormant company will be considered as such if it is a new limited company, which has not yet started trading. Furthermore, a company will be considered dormant if it is a flat management company and if it is an unincorporated association or a charity that owes less than £100 corporation tax.
The difference between a dormant and non-trading company
Although a non-trading company may not be carrying out any business, it may still be involved in other daily transactions. These include paying amounts for rent, salaries, legal fees, bank charges, etc. In such a case, the company is not considered dormant but rather non-trading, and as such it will have what are considered “significant accounting transactions” during a given accounting period.
Filing dormant company accounts
Just because your dormant company is not carrying out any business activity, earning interest, managing investments or receiving income from other means, it doesn’t mean that you have no tax obligations. In fact, if your company is considered dormant by HMRC, you will generally be exempt from the requirement to file an annual corporation tax return. However, instead of filing more comprehensive tax returns, you will only need to prepare an abridged or an abbreviated set of accounts for Companies House. For this purpose, you will need to submit your accounts online and use form AA02, which includes details such as issued share capital, net assets, date of accounts approval by directors, name and signature of director(s), company and name and registration number, etc.
Looking for a personal tax advisor?
Whether you’d like to register a company as dormant or need help in filling out your AA02 form for submission to Companies House, you’re in luck because at Tax Navigator, you have your own personal tax advisor who can help you with your outsourced bookkeeping and virtually all tax-related matters. With a specialist at your side, you will never have to worry about the hassles of navigating the complex landscape of accounting and tax returns to ensure that you are on the right side of the law. Simply get in touch with us today and discover how we can help you! We are simply a call away and ready to help.
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