What is a dormant limited company?

Unlike active companies, dormant limited companies do not trade at all.

Although most businesses registered with Companies House process income and expenditure, dormant companies are just standard limited companies that are inactive.

There are actually two slightly different tests for dormancy – one used by Companies House for company accounts, and another used by HMRC for Corporation Tax.

Some basic rules about dormant companies

• A company that starts trading will no longer be dormant.
• For Companies House purposes, a company is dormant if it has had no significant accounting transactions during the financial year.
• For Corporation Tax purposes, HMRC generally treats a company as dormant if it is not active.
• Activities such as buying or selling goods, buying property or business assets, receiving trading income or paying staff will normally mean the company is no longer dormant.
• As the reporting requirements for dormant companies are different, it is vital that directors are aware of the distinctions between active and dormant businesses.

Companies House ignores a small number of transactions when deciding whether a company is dormant, including fees paid to Companies House for filing a confirmation statement, penalties for late filing of accounts and money paid for shares when the company was incorporated.

See the official GOV.UK guidance on dormant companies.

Why would you own a dormant company?

While dormant businesses cannot trade and cannot, therefore, make a profit from trading, there are advantages to registering a dormant company with Companies House.

This will normally arise in one of two ways:

• a company will be dormant from the moment it is incorporated or
• an active company may become dormant.

Protecting a name for the future

In the first instance, an individual may choose to register a dormant company so that they can begin trading at some time in the future.

Being proactive and incorporating the enterprise ensures that no one else can register a company with exactly the same name, subject to the Companies House naming rules, which can be attractive to future company directors.

This does not give you general trade mark protection over the name or prevent another business from using a similar trading name.

Protection for sole traders

In addition, existing sole traders may want to create a dormant company to protect their name and reputation.

Although a sole trader may have operated under a specific business name for some time, if a company with that name has not been registered at Companies House, someone else may be able to register it as a limited company.

By creating a dormant limited company, the sole trader can prevent another company from registering exactly the same company name and still continue to trade as a sole trader.

Temporarily cease trading

When existing companies cease trading permanently, they are usually closed down.

While this is standard procedure if the business is closing, directors may want to temporarily cease trading in some cases.

By making the company dormant, directors may benefit from fewer reporting requirements and lower costs but are still able to ‘re-activate’ the company at any time.

This can be particularly advantageous for smaller limited companies.

Rather than permanently closing the business, the directors can leave the company dormant and retain the option to trade in the future.

Companies House dormancy vs HMRC dormancy

It is worth understanding the distinction between the two.

Companies House considers a company dormant for accounts purposes if it has had no significant accounting transactions during the financial year.

HMRC uses the term dormant for Corporation Tax where a company is not active for Corporation Tax purposes.

A company can therefore potentially be dormant for one purpose but not the other. For example, a transaction such as receiving bank interest may affect whether dormant accounts can be filed at Companies House even where the company is otherwise inactive.

How do you make an existing company dormant?

If you want to change a company’s status from active to dormant for Corporation Tax, you’ll need to tell HMRC.

You, or your accountant, can do this online. Make sure you have the following information to hand:

• Your company’s 10-digit UTR number.
• The date the company ceased trading, if it ever started.

You can also tell HMRC via phone or post if you cannot use the online service.

If your company has previously traded, you must prepare any outstanding Company Tax Return and pay any Corporation Tax due on profits made before it became dormant.

If HMRC has already issued a notice requiring a Company Tax Return, you still need to file that return even if the company became dormant during the period.

After you’ve told HMRC the company is dormant, you shouldn’t normally need to file another Company Tax Return unless you start trading again or HMRC asks you to.

What about VAT and PAYE?

If the company is registered for VAT and you do not intend to trade again, you normally need to deregister for VAT within 30 days of becoming dormant.

If you intend to restart trading, you may instead need to continue submitting nil VAT returns while the company is dormant.

If the company has employees or continues making payments through payroll, it will not normally fit the straightforward dormant-company position. PAYE arrangements should be dealt with when trading stops.

Are there reporting requirements for a dormant company?

Yes. A dormant company still has Companies House filing obligations.

You must file the following documents with Companies House each year:

• A confirmation statement.
• Dormant annual accounts, where the company qualifies to file them.

Every company must file a confirmation statement at least once every 12 months, including dormant companies. The current fee is £50 online. :contentReference[oaicite:2]{index=2}

Companies House also confirms that dormant companies must continue filing annual accounts. A company that is dormant and qualifies as small can normally file simpler dormant accounts and may be exempt from audit. :contentReference[oaicite:3]{index=3}

You can find out more about filing dormant company accounts online.

How do you make a dormant company active?

• If you decide to make a dormant company active for the first time or re-activate a previously trading company, you must tell HMRC within three months of starting business activity.
• If your company has never actively traded, you will need to register it for Corporation Tax when it becomes active.
• If your company has previously traded, you can tell HMRC that it has started trading again.
• You don’t need to submit a separate notification to Companies House simply because the company has become active. The next set of non-dormant accounts will show the change in status.

In summary

Whether companies are newly incorporated or have been trading for a significant period, making a company dormant can have numerous benefits.

If the company cannot trade at present, notifying HMRC that it is dormant can help lessen the director’s administrative burden.

It can also reduce the associated costs while enabling the company’s directors to restart – or start – trading at a later date.

Just remember that dormant does not mean administration-free. Annual accounts and the confirmation statement still need to be filed with Companies House.