A Dormant Company is a limited company that is officially registered with Companies House but is not currently carrying out any business activity or receiving income.
Simply, the company is not trading and receiving absolutely no income. That means it is not:
- Selling products or services
- Issuing invoices
- Advertising
- Renting property
- Employing anyone
However, even though the company is inactive in terms of business, it still exists as a legal entity. Because of this, it must follow certain rules and meet specific filing and reporting obligations each year.
Understanding Dormant Company Status
There are two different definitions of what “dormant” means, depending on whether you are referring to HMRC (for tax purposes) or Companies House (for company records). You should still understand both definitions so you know exactly what these bodies expect of you.
Dormant for HMRC (Corporation Tax Purposes)
HMRC considers a company dormant for Corporation Tax if it:
- Has stopped trading and no longer receives any income
- Is a new company that has never traded
- Is an unincorporated association or club that owes less than £100 in Corporation Tax
- Is a flat management company
Trading includes a range of activities such as:
- Buying and selling
- Earning interest
- Advertising
- Hiring employees
If none of these are happening and the company has no other income sources, then it qualifies as dormant for HMRC. However, even if dormant, HMRC may still issue a “notice to deliver a Company Tax Return”. If they do, you must submit one for the period up to dormancy.
Dormant for Companies House
Companies House has a slightly different take. They consider a company dormant if it has had no “significant accounting transactions” during its financial year. Significant transactions include anything that you would record in the company’s accounts. However, some transactions are allowable and do not affect dormant status. These include:
- Payment for shares at the time the company was set up
- Fees paid to Companies House, such as for a change of name
- Filing of annual Confirmation Statements
- Penalties paid for late filing of documents
If those are the only transactions made, the company can still be treated as dormant.
Why Choose to Make a Company Dormant?
There are many reasons why a business owner might decide to make a company dormant. These include:
- Protecting a Business Name – You might register a company to prevent anyone else from using the name, even if you do not plan to trade right away.
- Pausing Operations – If you are unsure about the future of your business, dormancy allows you to pause operations without closing the company.
- Business Restructuring – Dormancy can be useful during a business reorganisation.
- Holding Assets or Intellectual Property – Dormant companies can still hold property, trademarks or patents but they cannot earn from them.
Dormant status is flexible and cost-effective. It reduces paperwork and makes it easier to restart the business later if needed.
What You Must Do Once Dormant
Even if your company is dormant, you still have responsibilities:
Annual Accounts and Confirmation Statement
You must submit a Confirmation Statement and Annual Accounts to Companies House every year. If the company is dormant for the full accounting period, you can submit simplified Dormant Accounts. These are shorter and easier to prepare than full trading accounts.
Informing HMRC
You must tell HMRC when your company becomes dormant. If you do not, HMRC will continue to expect Corporation Tax returns and you may even receive fines for not submitting them. When informing HMRC, you need to provide:
- The full name of your company
- The company’s Unique Taxpayer Reference (UTR)
- The date the company stopped trading or became dormant
In some cases, HMRC may contact you first and let you know they consider your company dormant. In this case, you may not need to take further action unless you start trading again.
VAT
If your company is VAT-registered, you need to de-register within 30 days of becoming dormant if you do not intend to trade again. If you intend to resume trading later, you may stay VAT-registered but must submit nil VAT Returns in the meantime.
Payroll
If your company had employees, you will need to pay any wages owed and close your PAYE scheme with HMRC.
What You Cannot Do While Dormant
Dormant companies have strict limits on what they can and cannot do. You are not allowed to:
- Trade or carry out business activities
- Issue invoices or receive new payments for products or services
- Pay salaries or directors’ wages
- Claim most types of business expenses
- Stay VAT-registered (unless filing nil returns)
However you can still keep a Business Bank Account open and pay costs such as bank charges or accountancy fees. Just be cautious, as any new financial activity could mean the company is no longer dormant.
Making a Company Dormant
If you decide to make your company dormant, you should follow these steps:
- Stop all trading activity and issue no more invoices
- Settle any outstanding bills or invoices
- Inform HMRC that your company is now dormant (do this as soon as possible)
- File your final Corporation Tax return showing your trading ended
- Deregister for VAT and close your PAYE scheme if applicable
- Begin submitting Dormant Accounts and Confirmation Statements annually
Getting help from an accountant can make this process smoother.
How Long Can a Company Stay Dormant?
There is no limit on how long a company can remain dormant. This is useful if you are using the company to hold a business name or asset for future use. However, you must continue to file Confirmation Statements and accounts each year. These filing obligations help ensure the company stays legally compliant.
You will also need to pay minimal running costs, such as filing fees.
Reactivating a Dormant Company
If you are ready to trade again, you can reactivate your company by following these steps:
- Notify HMRC within three months of resuming activity
- Register for Corporation Tax if necessary
- Re-register for VAT if you had deregistered before and your turnover will exceed the threshold
- Submit new trading accounts to Companies House
You do not need to inform Companies House directly that you are trading again. When you file your next set of non-dormant accounts, that will signal the change in status.
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