I regularly see the term dormant company used incorrectly.
“Can I declare my company dormant?”
“I have a few transactions but want to file dormant accounts”
Unfortunately the term “dormant” is often misused and perhaps misunderstood.
So what is a dormant company?
The definition of importance is the Companies House one:
A company is dormant if it has had no ‘significant accounting transactions’ during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records.
When determining whether a company is dormant you can disregard the following transactions:
- payment for shares;
- fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing the Confirmation Statement; and
- payment of a penalty for late filing of accounts.
So there must be no significant transactions for the WHOLE of the accounting period.
This means that a company is not dormant if for example:
- There is interest received on the company bank account
- Accounting fees are paid
- A web site, hosting and url are paid for
- Bank Charges are incurred
Any such transactions will mean that the company has to file accounts and corporation tax returns in the normal way.
Can I declare my company to be dormant?
There is no formal process to declare a company as dormant. In fact you still have filing duties to adhere to even if the company is dormant.
For example you must file dormant accounts at Companies House by the due date and file the Confirmation Statement each year.
In addition you must inform HMRC that the company is dormant so that it does not expect a corporation tax return to be filed.
Failure to file can result in fines and / or the company being struck off!
Can I set up a dormant company to protect a business name?
Yes and this is quite a common practice.
A company can be registered at Companies House even if there is no immediate intention for that company to trade.
However, once again the company must file dormant accounts, a Confirmation Statement and let HMRC know that it is dormant and a corporation tax return will not be due.