Most of the limited companies actively run their business affairs, but some of them may leave their company dormant because of multiple reasons. It can be done to reduce the legal requirements, to start it in the future, to hold assets, and to take a break. The most common reason for making a company dormant is to start it later when you’re ready. This will protect your business name for a certain period. Before discussing, how to make a limited company dormant. Let’s start with what actually a dormant company is?
When your Company is Dormant?
Your company is classified as dormant when you stop trading, and you’re not earning from other sources like investments. When your company is dormant, it will act differently for corporation tax, company tax returns, company’s annual and accounts, and returns for Companies House.
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Dormant for Corporation Tax:
A company is considered dormant for corporation tax provided:
- it has ceased trading and doesn’t earn from other resources (e.g. investment)
- it’s new and hasn’t begun trade yet
- it is a flat management company
- it’s an unincorporated club or association with a due Corporation Tax below £100
Trading includes activities through which you earn. Find more details on the government website to know if your company is entitled to dormant for corporation tax or not. You are not required to pay corporation tax and file other tax returns after mentioning your company as dormant to HMRC. But if HMRC provides you a notice of tax returns, then you should do it.
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Dormancy for VAT:
If your company stops trading, you need to deregister for VAT within 30 days, after becoming dormant. However, when you plan to trade again, you should file zero tax returns being dormant.
How to make a limited Company Dormant?
Wondering how to make a limited company dormant? To make your limited company dormant, you first need to inform your local corporation tax office, clients and agents, that you’ve ceased your trading on a specific date. You may get their contact details through HMRC.
Afterward, HMRC will send you a notice asking for a company tax return at your address. It will take place immediately before making your company dormant. You’d have to file returns and pay the due tax of your company.
HMRC will normally take three weeks to send confirmation about your dormant status. After the date on which you are declared dormant, HMRC will treat you as an inactive company. Afterward, your correspondence with HMRC will be less than before. And you don’t need to contact it until you restart trading or dissolve your limited company.
Dormancy for Companies House:
Your company would be entitled to dormant if you had no significant transactions in a tax year. These transactions do not cover:
- Payments to companies house as filings
- Charges for late filings
- Payments to shares when a company was incorporated
You don’t need to inform companies house that you have restarted your trading. The next set of filings as a non-dormant account will automatically indicate that your company is non-dormant now.
You need to file annual accounts and a statement of confirmation through previous annual return if you’re dormant for corporation tax and Companies House.
If your company qualifies for “small” and you’re dormant according to companies house, you don’t need to add an auditor’s report along with your accounts and you can file dormant accounts.
Find out the details for is a small company which is dormant for Companies House.
Reactivation of a Dormant Company:
We have discussed, how to make a limited company dormant. Hopefully, it’d be beneficial for you if you are willing to make your limited company dormant. When you reactivate your dormant company after a certain time, you should inform HMRC within three months. The simple way is to do it using HMRC’s online registration service.
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Disclaimer: This blog provides general information about the topic, visit the government website for details.