We often find that there is a bit of confusion around dormant accounts. So here at the Accounting Studio, we we’ve taken it upon ourselves to clear a few things up.
Firstly, we should say that if there is confusion, it is not surprising, because what happens to your accounts at Companies House, is actually quite different to what happens at HMRC.
Why a company might be dormant
Being dormant at Companies House means you get to file dormant accounts, which are much simpler than ordinary accounts and therefore cheaper to prepare.
Being dormant at HMRC means you don’t need to file a corporation tax return. Again saving you in fees, and admin.
There are broadly two sets of circumstances that lead to a company being dormant
- The company has never traded. It was incorporated but has never actually be used to do anything.
- The company has previously traded, but has now ceased. The owner has decided to to wind the company up, which can be for a variety of reasons, and so the company is just going to sit there (dormant) until it is either going to be used again, or is finally going to be wound up
Dormant Accounts at Companies House
At Companies House, dormant accounts mean a very specific thing. It means that the company has had “no significant transactions” in the financial year . It’s a bit of a vague definition, I’ll grant you that.
Retranslate that, if you will, to the company has had NO transactions in the year, except for in a few circumstances.
The following transactions are OK, but if there is anything else at all – interest received, bank fee, payment of dividends, paying corporation tax, receiving money from invoices from the previous year – literally anything and you will not be dormant.
The green-list transactions are
- filing fees paid to Companies House
- penalties for late filing of accounts
- money paid for shares when the company was incorporated
That’s it.
At Companies House – one does not register one’s company as dormant. By that I mean you do not need to tell Companies House that the company is now dormant. What you do instead is, after the year end, assess whether the company meets the definition of being dormant and then file dormant accounts if they are. So you don’t need to do anything up-front, or in advance. It is all after the event.
The problem most people encounter is that it is really really difficult to end up with no transactions. For example, after ceasing trading, you still have to file a corporation tax return, and that return will likely either involve you paying HMRC something, or HMRC paying you back some previously paid corporation tax. This will happen after the year end, and like that [snaps fingers] you’ve lost your dormant status.
Dormant accounts at HMRC
Rather unhelpfully, HMRC do things differently to Companies House. For HMRC you actually do need to tell them in advance you are not trading and that it is dormant for corporation tax. This is so that they don’t issue you with a notice to file a corporation tax return.
The definition is also slightly different, and less strict that Companies House. HMRC generally considers a company or organisation to be dormant for Corporation Tax purposes if it’s no longer carrying out any business activity. If you are doing any of the following you are considered “active” for corporation tax (and therefore not dormant):
- carrying on a business activity such as a trade or professional activity
- buying and selling goods with a view to making a profit or surplus
- providing services
- earning interest
- managing investments
- receiving any other income
More information on whether a company is active can be found here: https://www.gov.uk/guidance/corporation-tax-trading-and-non-trading
The way you make your company dormant for corporation tax is through the submission of the corporation tax return. There is a section in there to tell HMRC that it is no longer active, and so HMRC will duly stop sending out a notice to file a corporation tax return.
