How to make your company dormant?

What does the term ‘dormant company’ mean?

Your business is considered dormant if it is not trading and you don’t earn income from other sources, such as investments.

The term ‘dormant’ means several things for your corporate tax and corporate tax returns, and your annual accounts and returns to the Companies House.

Dormant for HMRC

Your business is dormant for corporation taxes if:

• it has stopped trading and has no other income;
• it is a new limited partnership that has not yet started trading;
• it is an unincorporated club or association owing less than £100 corporation tax.

Dormant for the Companies House

If your business is dormant and qualifies as small according to Companies House, you can submit ‘dormant accounts’ and you do not need to include an audit report.

Your company is classified as "small" if it has two of the following characteristics:

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

It means that you can:

• use the exemption so that your company accounts do not need to be audited;
• choose whether or not you want to send a copy of the director’s report and profit and loss statement to the Companies House;
• send abridged accounts to Companies House.

The rules are different if your business is classified as a 'micro-entity' according to HMRC.

Your business is classified as a 'micro-entity' if it has two of the following characteristics:

• turnover of £632,000 or less;
• £316,000 or less on the balance sheet;
• 10 or fewer employees.

It means that you can:

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

How to inform HMRC that your business is dormant

The question of how to declare a company dormant is quite simple: you can tell HMRC that your company is dormant for corporation tax purposes if it has stopped trading and has no other income.

Companies that have never received a 'notice to file a Company Tax return' can notify HMRC over the phone. Those who have received this notice or previously filed a return are required to file a Company Tax return online, showing that the business is now dormant.

Or HMRC may write to tell you that they treat your business as dormant and that you do not have to pay corporation tax or file Company Tax returns.

De-registering for VAT and closing PAYE

It is important to de-register within 30 days if your dormant business is registered for VAT unless you plan to restart trading at some point. In that case, you must submit a ‘nil’ VAT return.

Similarly, unless you plan to restart your business, you must terminate your PAYE scheme.

How to restart a dormant company

If your business has never traded before, you must register with HMRC before doing anything else. Even if your business has been trading before, there are four steps you need to take to restart a dormant company:

• tell HMRC your business has restarted by registering for Corporation Tax;
• submit accounts to the Companies House within nine months of your business year-end;
• pay any Corporation Tax due within nine months and one day of company year-end;
• submit a Corporation Tax return (including full statutory accounts) to HMRC within 12 months of your company year-end.

If you need to submit any reports to the Companies House or HMRC then you should contact Persona Finance (email - enquiries@personafinance.co.uk).