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What is a dormant company? A guide for small businesses

3-minute read

Lauren Hellicar

25 September 2020

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Any small business owner planning on making a limited company dormant will need to take steps to make sure they're staying on the right side of HMRC.

Before we go into the details, it's important to understand what it means to make a company dormant.

What does the term 'dormant company' mean?

Your company is considered dormant if it's not trading and it's not getting any income from other sources, like investments.

The term 'dormant' means different things for your Corporation Tax and Company Tax Returns, and your annual accounts and returns for Companies House.

Dormant for Corporation Tax

Your company is dormant for Corporation Tax if:

  • it has stopped trading and has no other income
  • it's a new limited company that hasn't started trading yet
  • it's a Right to Manage company for a block of flats
  • it's an unincorporated club or association owing less than £100 Corporation Tax

There's more detail on the government website.

Dormant for Companies House

If your company is dormant according to Companies House and qualifies as small, you can file 'dormant accounts' and you don't have to include an auditor's report.

Your company is classed as ‘small’ if it has any two of the following:

  • a turnover of £10.2 million or less
  • £5.1 million or less on its balance sheet
  • 50 employees or less

It means you can:

  • use the exemption so your company’s accounts don't need to be audited
  • choose whether or not to send a copy of the director’s report and profit and loss account to Companies House
  • send abridged accounts to Companies House

The rules are different again if your company is classed as a 'micro-entity' according to HMRC.

Your company is classed as a 'micro-entity' if it has any two of the following:

  • a turnover of £632,000 or less
  • £316,000 or less on its balance sheet
  • 10 employees or less

It means you can:

  • prepare simpler accounts that meet statutory minimum requirements
  • send only your balance sheet with less information to Companies House
  • get the same exemptions available to small companies

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How to fill in an AA02 for a dormant company

If your limited company has never traded, you can use the form AA02 to file your dormant company accounts.

Downloading and filling out a paper form will take longer than using the government's online service.

How to inform HMRC that your company is dormant

The question of how to declare a company dormant is fairly straightforward – you can tell HMRC that your company is dormant for Corporation Tax if it has stopped trading and has no other income.

Companies that have never had a 'notice to file a Company Tax Return' can let HMRC know over the phone. Those that have had this notice, or have previously filed a return, will need to file a Company Tax Return online, which will show HMRC that the company is now dormant.

Or, HMRC may write to you to tell you they're treating your company as dormant and that you won't be required to pay Corporation Tax or file Company Tax Returns.

De-registering for VAT and closing PAYE

It's important to de-register within 30 days if your dormant company is registered for VAT, unless you plan to restart trading at some point. In this case, you should submit 'nil' VAT returns.

Similarly, you should close your PAYE scheme unless your plan is to start your business up again.

How to restart a dormant company

If your business has never traded, you'll need to register with HMRC before you do anything else. Even if your firm has traded before, there are four steps you should take when restarting any dormant company:

  • tell HMRC your company has restarted by registering for Corporation Tax
  • send accounts to Companies House within nine months of your company year end
  • pay any Corporation Tax due within nine months and one day of your company year end
  • send a Company Tax Return (including full statutory accounts) to HMRC within 12 months of your company year end

Have you made a company dormant? How easy was the process? Let us know in the comments.

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We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer

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