Plenty of companies sit dormant, a venture that did not start, a name held for later, a trade that has paused. Directors often assume that a company doing nothing needs nothing done. Companies House disagrees, and the penalties for filing late apply just the same to a company with no transactions at all.
There are two different dormancy tests
This is the source of most of the confusion. "Dormant" means different things to the two authorities:
- Companies House: a company is dormant if it has had no significant accounting transactions during the financial year.
- HMRC: a company is dormant for corporation tax if it is not carrying on a trade or otherwise within the charge to corporation tax.
A company can be dormant for one and not the other. A company holding a deposit account that earns interest, for example, may well be within HMRC's charge while looking quiet to Companies House. Satisfy each separately.
What still has to be filed
- A confirmation statement, at least once every twelve months, confirming the registered office, officers, shareholders and people with significant control. This is due whether or not the company trades, and it is the single most commonly missed filing.
- Annual accounts. A dormant company limited by shares can usually file simplified dormant accounts, in many cases on form AA02, far shorter than full accounts, but still due by the deadline.
- A corporation tax return, if HMRC has issued a notice to deliver one. Once HMRC accepts the company is dormant it will normally stop issuing notices, but until it does, a notice must be answered.
- The register of people with significant control must be kept up to date.
Tell HMRC as soon as the company becomes dormant. Doing so stops the corporation tax notices, and stops the penalties that follow ignoring them.
What breaks dormancy
"No significant accounting transactions" is stricter than it sounds. A single entry through the company's bank account can end dormancy and pull the company into full accounts. Common culprits:
- Bank charges or interest on a company account, which is why dormant companies are often better off with no bank account at all;
- Paying the accountant or any supplier from company funds;
- Buying or renewing anything, a domain, a subscription, insurance.
A short list of transactions is specifically permitted and does not break dormancy, principally payment for shares taken by subscribers on formation, and certain fees paid to Companies House, for a change of name, re-registration, filing a confirmation statement, and civil penalties for late filing.
Dormant, or closed?
Keeping a company dormant costs a little admin each year and preserves the name and the entity. If you are genuinely never going to use it, closing it properly is usually cleaner, and leaving companies dangling has a second cost: a dormant company is excluded from the associated companies count, but a company that is not quite dormant is not, and can quietly cut your corporation tax thresholds. Our guide to closing a UK company properly compares striking off with a members' voluntary liquidation.
Small obligation, real penalties
Late filing penalties for a dormant company are the same as for a trading one, and persistent failure can lead to the company being struck off and directors facing action. It is a modest amount of work to do correctly and an avoidable mess to get wrong. We handle dormant company filings as a fixed, low-cost service alongside our formations work. Get in touch if you have a company sitting idle and are not certain what is outstanding.