Something more than hibernation? How to make your company dormant

We’ve been receiving a lot of queries from founders on how they can make their companies dormant instead of shutting down by liquidating or applying for administration.. In this article, we’ve listed out the most common questions we receive regarding what a dormant company is, what you need to do to make your company dormant and more importantly, how you can resume business.

When can I make my company dormant?

If you’re a company that has incorporated and registered at Companies House, you can make your company dormant at one of two times:

1. Immediately after incorporation; or
2. After you have traded for some time.

For example – you’re taking time off work, focusing on what you need to do to sort out a minimum viable product or you’ve come up with this unique name for your company and don’t want anyone else to take it while you’re figuring it out!

Examples of when a company can be dormant are:

• a new company that’s not yet trading
• an ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
• a company that will never be trading because it has been formed to own an asset such as land or intellectual property. ‘Off-the-shelf’ is a company that has no assets or liabilities, and has never conducted business. It is a limited company pre-registered at Companies House, waiting on a shelf for someone to buy it. A “shell” company is a company without an active business or significant assets, often just existing on paper. It is often kept inactive for future use in a specific capacity.
• an existing company that has been – but is not currently – trading
• a company that’s no longer trading and destined to be removed from the Companies Register

What are Dormant Companies?

A company is dormant when it has no significant accounting transaction. Every company needs to maintain their financial records with a true view of the cash in and out of the business so when this flow of money stops – you can apply to be dormant.

How do I make my company dormant?

• Pay all of your bills.
• Terminate contracts with your service providers.
• Make sure the company bank account is non-interest bearing – if you receive any interest, you won’t be dormant anymore.

If you’re dormant, only the following transactions are permissible:

• Any transaction arising from the taking of shares in the company by a subscriber to the memorandum as a result of an undertaking of the subscriber in connection with the formation of the company;
• Any transaction consisting of the payment of:
  • A fee to the registrar on a change of the company’s name,
  • A fee to the registrar on the re-registration of the company,
  • A penalty for failure to file accounts, or
  • A fee to the registrar for the registration of a confirmation statement (the CS01).

Do I need to notify HMRC?

Yes.

Once you’ve sorted out the company accounts and all outstanding payments, write to your local Corporation Tax Office and indicate the date from which the company will be made dormant.

HMRC will send you a ‘Notice to Deliver a Company Tax Return’. You need to complete this form and file it along with any payments owed.

Some points to remember:

• If you never had a ‘notice to deliver a Company Tax Return’ : you can tell HMRC by phone or post that it’s dormant for Corporation Tax purposes.
• If you have: you’ll still need to file a Company Tax Return online – this will show HMRC that your company is dormant for the specified period.

Do I need to file anything with Companies House?

The short answer: yes. You have to file the company’s confirmation statement (previously, the annual return) and the annual accounts with Companies House even after the company is dormant. Your reporting dates stay the same for annual returns and accounts.

If your company satisfies any two of these conditions- a turnover of up to £10.2 million, 50 employees or less, or £5.1 million or less on the balance sheet- it’s a small company. Different rules apply to you:

• You can file ‘dormant accounts’ instead;
• You don’t have to include an auditor’s report with your accounts.

You can file your dormant accounts using the webfiling system on Companies House or submitting form AA02.

How has COVID-19 impacted this process?

From March 25, 2020 you can apply for a 3-month extension for filing your accounts per the latest guidance.

How can I restart a dormant company?

1. You have 3 months to notify HMRC once you resume trading.
2. Register for Corporation Tax (you will need to register again, if you registered previously).
3. Pay any Corporation Tax that is due (within 9 months and 1 day of the company’s year end)
4. Put together statutory accounts and send in your company’s tax returns within 12 months of the company’s year end.

Questions? Let us know!