UK Dormant Company Accounts

A dormant company in the United Kingdom is one which has already been registered with Companies House but is not currently carrying on any business or earning any income, which essentially means that it is just standing still. The British Tax Office (HMRC) considers that this type of company is inactive and therefore not taxable. A company can become dormant either from the moment of its incorporation or after some period of trading activity. 

Reasons for the appearance of inactive companies

It would seem that what is the point of setting up a company in the United Kingdom, collecting various documents, looking for an office and employees to then declare its company inactive, dormant, non-active? Very rarely does the establishment of a firm need this in order to reserve a unique company name when launching a new business, and sometimes to restructure a previously active business. In some cases, it is necessary to designate a company as dormant because its owner has to interrupt its operations for a number of personal reasons, such as pregnancy and childbirth, a serious illness, a long trip, a sabbatical, and more.

The company may remain dormant, however, for an unlimited amount of time, it is also worth notifying the Registration Chamber (Companies House) as soon as possible of its decision and to fulfill a number of requirements in this regard, so that there will be no problems with annual reports, taxation, etc. The firm must submit a resolution to the Registration Chamber and not to conduct accounting transactions. By this we mean all transactions, which must be listed in the accounting records of the firm:

  • Reports that show information about the company’s possible indebtedness and assets.
  • The transfer or receipt of money to or from anyone.

From this we can conclude that a dormant company in the UK cannot make or receive transfers of money or have debts or assets that generate profits for the company. Also, dormant UK companies are required to file annual reports of possible changes, documenting that the corporate accounts are inactive so as not to remove the dormant company status.

Can a dormant UK company conduct any trading activities?

An inactive firm is not allowed to conduct trading activities or generate any form of income, this includes:

  • Buying or selling services or goods
  • Hiring of personnel
  • Leasing or buying real estate
  • Managing investments and receiving dividends
  • Payment of salaries to directors
  • Payment of dividends to company shareholders
  • Earning interest or paying bank charges

If a dormant British company does any of the above, it will lose its dormant status and will have to prepare full accounts as required by British law. But in principle this is logical, because it was said above about the fact that the dormant company can not conduct any banking operations, because in the case of this will lose its status and will make annual reports and pay taxes as any working firm in the United Kingdom. Thus even having thought about it logically, one can come to the conclusion that a dormant company can carry out trading activities only if it is willing to lose its status and become an active enterprise.

How to make a company “dormant” in the UK?

In order to register a dormant company in the United Kingdom or to transfer an existing company to inactive status, the owner must apply to the British tax authorities. It is worth indicating the exact date on which any business activity was discontinued.

Then within 15 days a notification will be received at the company’s registered office confirming the status of the company as inactive. Such a company is no longer obliged to keep accounting and submit an annual report.

Before filing an application to transfer the company to inactive status, make sure that all bills payable are paid, salaries to employees and directors are paid, dividends are sent to shareholders, because if something is not paid, it can cause huge trouble, for you as the owner of the company, who is trying to take care of its employees, while raising the status of his company.

Regarding bank accounts

If the company immediately after registration became dormant, it does not make sense to open a corporate account for it, at least until it is still inactive. If the company was active for some time, then it is best to close all the existing corporate bank accounts so as not to pay for their maintenance, especially if you have made the company dormant for a long period. Also a very interesting fact, paying for the maintenance of such an account the company loses the status of not operating, as it will be counted as the financial activity of the company. Any unforeseen payments are recommended to pay from personal accounts. Most often, such payments can occur when the owner before deciding to make a dormant company did not check if he had paid all the employees and had already drawn up all the documents. This was the most trivial situation, but it’s better to measure seven times and cut once. 

What transactions can a dormant company make:

– Payment of the filing fee to the Registrar’s Office for filing a confirmation

– Payment of fines for late filing of HMRC reports

All other types of payments made by a dormant British company will be considered accounting transactions requiring full financial statements to be filed.

Dormant company reporting in the UK

The United Kingdom is exactly the kind of country that has a simple system of setting up a business with a few different company options, doing business, etc., but it is also very demanding in terms of reporting. If you read about business in the UK you are unlikely to see an article that doesn’t talk about reports. 

Dormant British companies have to file annual reports confirming their status as “dormant”. These documents can be submitted online using special form AA02. Reporting can be done within 9 months after the end of the financial year. The supporting report must contain the following information:

  • The legal address of the company
  • Details of directors
  • Secretary’s details (if you do not have one, you do not need one)
  • Information on shareholders
  • Information on shares issued
  • Company profile
  • Details of the location of the company’s constitutional documents.

This information is needed to confirm the information about the company, which is available in the public register. If any information in the company has changed, it is worth notifying the Registrar’s Office as soon as possible.

Those dormant companies which were previously carrying out commercial activities before becoming dormant should file a tax return with HMRC. If companies in the United Kingdom became dormant immediately after incorporation, there is no need to file a tax return. It is also worth noting that dormant companies are exempt from paying taxes. However, businesses must take care that there are no liabilities to HMRC for the period of activity. If the dormant company was trading, it must settle all liabilities to HMRC for that period.

How do I activate a dormant company?

If the owner of a dormant company decides to “bring it back to life”, they must notify HMRC of their intention within three months of starting any trading activity or earning any form of income.

If the company has never traded before, it needs to register online as a corporation tax payer and create an account.

However, it’s worth remembering that you still have to pay for maintaining a dormant company. The expenses include rent for a registered office, administrative and nominal services, etc.

It is also possible to register a new British company and immediately declare it dormant in order to protect intellectual property or assets, save it for future projects.

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