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.
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Before we go into the details, it's important to understand what it means to make a company dormant.
Your company is considered dormant if it's not trading and it's not getting any income from other sources, like investments.
Your company is dormant for Corporation Tax if:
There's more detail on the government website.
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:
It means you can:
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:
It means you can:
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.
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.
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.
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:
Have you made a company dormant? How easy was the process? Let us know in the comments.
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