How To Make A Company Dormant
Companies can be registered as dormant, or made dormant, for various reasons:
- You want to make sure no one else gets a particular company name;
- You want to protect a brand name or trademark;
- You need it to hold a fixed asset which you don't want to hold personally, like property;
- You need it to hold intellectual property, like artistic works;
- The company's majority shareholder or CEO has died or has been incapacitated.
A company is classed by Companies House as dormant if it doesn't engage in 'significant transactions'. Beware: there are very few insignificant transactions a company can engage in. Even paying to strike off your limited company with a company cheque will mean it's still 'live'.
Try not to be too clever. If your company is actually doing business, however small, don't try to classify it as dormant. It's as much work, and more nerve-wracking, to be crooked, as it is to be straight.
Note: You still need to do annual returns for a dormant company: you can't just register it as dormant and then forget about it.
Things the company can pay for and still be dormant: penalties for late filing of accounts, filing fees paid to Companies House, payments for shares when the company was incorporated.
How to indicate to the authorities that my company is dormant?
HMRC: You write to them and tell them the date from which your company will be dormant. The will then post you a 'Notice to deliver a tax return'. You complete and file a tax return for up to the date you told them your company was going dormant and then they will write back that your company is now classed as dormant for their purposes.
If VAT-registered, you must tell HMRC that you have ceased making VAT-taxable goods or services and that you wish to cancel your VAT registration.
If HMRC accept your cancellation, they will write to you confirming this and you will then file a final VAT Return and pay any ourstanding VAT.
Companies House: If the company is to be dormant from the beginning, make sure 99999 is entered as the SIC code as part of the formation process.
You file full financial accounts for the period up to the start of the dormancy period. After that, you submit simplified dormant company accounts. You also have to keep submitting the Confirmation Statement yearly and keep the director's details and the company's registered office up-to-date.
If you decide to stop being dormant, you just start submitting normal returns.
Note: it's not a smart move to advertise your dormant company on your website and elsewhere and give the illusion that it's somehow 'live', unless the website too is a placeholder.
Anyone can check the status of your company at Companies House and see quite easily that it's dormant. This doesn't look right if you're still pretending your company is active.
Companies House Webfiling - Dormant Accounts PDF Screenshot
Tip: Don't have active company bank accounts. If you can, close them.
The reason is that any charges made on the account, or payments out, could invalidate your dormant status. If you need to pay for something, do it from your personal bank account.
Notify all suppliers and service providers that you're ceasing to trade. Settle all debts. Cancel all direct debits and standing orders.
When the dust has settled, then go to your bank to close the account.
The idea is that there will be no outstanding debt that will be levied against your company in the future, thus causing it to be active again.
The following activities will void your dormant status.
- Managing/making investments;
- Receiving dividend payments;
- Earning interest e.g. on a company bank account's deposit;
- Paying bank charges and fees;
- Paying accountancy fees through the business bank account;
- Buying and selling goods, services or property in the company name and/or through the company bank account;
- Operating a payroll;
- Paying directors’ salaries;
- Issuing dividends.
Ongoing, all you need to do to retain your company's dormant status is to keep filing keep your Annual Returns and Accounts with Companies House each year.
If you are dormant for more than two years, and you're not particularly attached to the company name, you might consider closing down the company entirely. You can easily set up another company later, when you actually want to start trading again.