What makes a company dormant?

This post will review what makes a company dormant. A dormant company is a limited liability company that is not trading (i.e., not conducting business) and receiving no other income. In such cases, the company is deemed “inactive” for purposes of Corporation Tax.

Your company can remain dormant and still file annual accounts with Companies House. However, you must notify HMRC as soon as you can. The Corporation Tax division can be reached by phone, email, or letter.

What  Exactly Is A Dormant Limited Company?

An organization is dormant if there are no “significant accounting transactions” during the fiscal year. Due to their lack of involvement in any commercial activity, the following companies are considered inactive for Corporation Tax purposes:

• Purchasing and selling products or services
• Buying or renting real estate
• Running the payroll
• Paying the salaries of directors
• Distributing dividends to shareholders
• Investing management
• Getting dividend checks
• Interest accrual
• Paying bank fees
• Using the business bank account to pay for the costs of company formation and accounting fees

If a “dormant” company does any of these things, it stops being “dormant” and is now considered “active” for Corporation Tax purposes. But the following things do not count as “significant accounting transactions” and can be done by a company that is not doing much:

• Payment for shares by investors (the first shareholders who join the firm at the time of incorporation)
• Companies House fees for filing annual Confirmation Statements (formerly known as “Annual Returns”), changing a company’s name, or re-registering a company.
• Payable to Companies House as late filing penalties

What Would Render A Limited Liability Company inactive?

There are numerous causes for a limited company to go dormant, including:

• Protecting a trademark or brand name
• Protecting a company name to prevent another business from registering it
• Reserving a business name in anticipation of future use
• When reorganizing an existing company
• Possessing assets or knowledge
• A short-term solution is if the company owner passes away or becomes ill.

Companies can be inactive for as long as they want, but keeping a limited company on the official register costs money. Also, dormant businesses still have to file paperwork and report to the Companies House and HMRC.

Register A Dormant Company To Safeguard Its Name

Creating a limited company is the only way to safeguard a company name. Another company might register your desired name if you don’t do this. There is no requirement to conduct business through the company if you register it merely to protect a name. It can be dormant for as long as necessary to safeguard a brand name or trademark.

How Can I Render My Business Inactive or Dormant?

To notify your local corporation tax office of a company’s change in trading status, either from active to inactive or vice versa, you must do so in writing and include the date the company became inactive. These will be included in any official HMRC correspondence sent to your registered office. If not, locate the nearest tax office. You should be notified that this dormant (inactive) status has been accepted at your company’s registered office address in no more than 15 days.

HMRC will send you a “Notice to File a Company Tax Return” if your business existed before and you informed your local corporation tax office. This form must be completed and submitted online to HMRC for the corporation tax accounting period before your business ceases operations. During that time, if your business is profitable, you will be responsible for paying any corporate taxes owed. If necessary, you must close your payroll or your VAT registration.

Before declaring your company inactive, you must confirm that all unpaid bills, including direct debits for service providers, employee wages, director salaries, shareholder dividends, and all accounts with suppliers, have been paid. You will need to plan how any money that clients owe your business will be settled.

After completing everything listed above, you won’t need to speak with HMRC again until your business begins to operate.

Although you are not required to notify Companies House when your business ceases operations, you must submit annual returns and dormant accounts yearly. Companies House is notified of a company’s inactive status when its annual accounts are filed; as a result, they are notified much later than HMRC.

Bank Accounts of Dormant (Inactive) Companies

It is advised not to open a bank account for an inactive business. Should your company have previously conducted business, closing any business bank accounts would be prudent to avoid bank fees or unanticipated payments that could jeopardize its inactive status? You may use a personal account to make any minor payments.

Reporting and Filing Requirements For Dormant Companies

Companies House requirements

Companies that are dormant (inactive) are required to submit annual reports and dormant company accounts to Companies House. The balance sheet and any pertinent notes make up the Dormant Company Account. Using form AA02, you can submit this information online or by mail to Companies House. The filing deadline for company accounts is nine months after the accounting reference date, which is the end of the fiscal year. The deadline will be 21 months from the date of incorporation if you submit your company’s first set of accounts that span more than a year. Companies House will provide ample notice of these deadlines.

Dormant companies must also submit an annual return to Companies House each year. This document includes the following list of crucial company information as of a particular date:

• Business name
• Address for SAIL (if valid)
• Location of registered office
• Details about Directors
• Secrecy-related data (if one is chosen)
• Details about the shareholders
• Information about issued shares
• Location of corporate constitution records

A company must submit its first annual return within one year of incorporation. Annual returns due after the first are due within a year of the first. There are no limits on the number or frequency of tax returns filed each year. To ensure that the public register is always accurate and up-to-date, it is necessary to verify vital company information. Dormant companies must ensure that their official records are kept up-to-date and accessible to the public at SAIL or their registered office, just like active companies. Any company’s registered information changes must be reported immediately to the Companies House. As a result, the public record will be updated.

HMRC Specifications

If a business was operating when it became dormant, it must file a Company Tax Return with HMRC. Since their incorporation, companies that have not done any business are not required to file tax returns until they do.

You must obtain a “Notice to Deliver a Company Tax Return” following notification of your company’s inactive status to your neighbourhood corporation tax office. This must be done to account for the activity period before the inactive period and calculate the corporation tax liability (if any).

A dormant company is exempt from communication obligations with HMRC until it starts trading or dissolves.

How Can I Reactivate A Dormant Company?

Within three months of engaging in any business activity or receiving income, you must notify HMRC of your intention to reactivate a dormant (inactive) company. If your company has existed, you must register it for corporation tax online and create a Government Gateway Account (GGA). You must supply HMRC with the following statutory information:

• Name of the company or organization
• Date of incorporation. This is when your business’s corporation tax accounting period begins.
• How many times is a business registered (CRN)?
• Standard Industrial Classification (SIC) code: what your business does best.
• The location where primary business operations are conducted.
• The date your company will prepare its financial statements is known as the accounting reference date (ARD).

Your company’s corporation tax accounting period will be established using this information and computer records maintained by HMRC. This time frame starts when your business starts doing business and ends on the annual accounts’ accounting reference date (ARD). Your company’s deadlines for paying corporation tax and submitting Company Tax Returns will be listed in a letter you receive at your registered office.

You must maintain accurate financial and accounting records to file these tax returns and determine your company’s tax liability. Consider hiring a tax professional or accountant to assist you with these matters. You must register as an employer for PAYE if your business employs individuals. If your company expects to generate more than £82,000 in annual revenue, you might also need to register for VAT. (Thresholds for 2015–16).

When a dormant company reactivates, Companies House should be notified; this can be done when the subsequent set of annual accounts is submitted.

Please do not hesitate to contact Southside Accountants Wimbledon for your accounting and tax advice needs.