Dormant company accounts can cause confusion because the word "dormant" does not mean exactly the same thing to Companies House and HMRC.

You might think a company is dormant because it has only had a few transactions or has not made much money.

However, that is not necessarily how the regulators see it.

In this episode, we look at what dormant actually means, what you still need to file, the difference between Companies House and HMRC, and what you need to do when the company becomes active again.

About this episode

What does the term dormant mean to you?

More importantly, what does it mean when you are the director of a company?

That distinction matters because misunderstanding dormancy can affect the action you take, or fail to take, and that can lead to penalties and compliance problems.

The rules apply whether you run a company limited by shares, a company limited by guarantee or a Community Interest Company.

Your wider obligations as a director continue even when very little appears to be happening inside the business.

You can read more about those wider obligations in our guide to the responsibilities of a company director.

Dormant does not simply mean quiet

One of the traps is assuming that low activity means dormancy.

You may have only a handful of transactions during the year and feel that the company has not done much.

However, if those transactions amount to genuine business activity, the company may still be active.

Likewise, making no profit does not automatically make the company dormant.

The important question is what activity actually took place.

In broad terms, a company may be dormant where it is not trading and does not receive other income, such as investment income.

However, Companies House and HMRC apply different tests, so we need to look at them separately.

Dormant for Companies House

Companies House looks at whether the company had any significant accounting transactions during the accounting period.

A significant accounting transaction is broadly something the company would normally need to enter into its accounting records.

However, Companies House ignores certain items when deciding whether the company is dormant.

These include:

• Companies House filing fees
• late-filing penalties
• money paid for shares when the company was originally incorporated

Therefore, those transactions alone do not necessarily stop the company being dormant.

This is useful where, for example, you form a company to secure a business name but do not intend to start trading immediately.

Dormant companies still have to file accounts

This is one of the most important points from the episode.

A dormant company does not disappear from the Companies House system.

You still need to file annual accounts.

In addition, you still need to submit a confirmation statement.

The accounts may contain much less information than the accounts of an active trading company, but the filing obligation remains.

“Even if there is no financial activity occurring, Companies House will expect accounts from you and the confirmation statement as a bare minimum.”

That applies even when the company has had no financial activity whatsoever during the year.

So do not assume that dormancy means there is nothing to file.

What happens if you do not file?

Missing filing deadlines can create financial penalties.

More seriously, if Companies House believes the company is no longer operating, it can take steps towards removing it from the register.

Failure to keep company filings up to date can also create practical problems when somebody checks the company's public record.

Therefore, dormancy is not a reason to ignore Companies House correspondence.

What happens when a dormant company starts trading?

The Companies House side is relatively straightforward.

You do not normally have to contact Companies House separately just to tell them that the company has started trading again.

Instead, the next accounts you submit will show that the company is no longer dormant.

However, the accounts themselves may need to change because the company now has activity to report.

So while you do not need a separate "we are active again" notification to Companies House, you still need to make sure the next set of accounts reflects the real position.

Dormant for HMRC and Corporation Tax

HMRC approaches dormancy from the Corporation Tax perspective.

A company will usually be dormant for Corporation Tax where it has stopped trading and has no other income.

A new company that has not yet started trading can also be dormant.

HMRC may also treat some other organisations differently, including certain clubs, associations and flat management companies.

Again, the important point is that the HMRC definition and the Companies House definition are not identical.

A company can therefore require different treatment depending on which organisation you are dealing with.

What counts as trading for HMRC?

Trading is wider than simply making sales or earning a profit.

Activities can include:

• buying and selling goods or services
• renting out property
• spending money on advertising
• employing staff
• earning interest

So a company can still be active even if the volume of transactions is very small.

For example, half a dozen genuine business transactions during the year may still mean you have an active company.

What matters is the nature of the activity, not simply the number of entries in the bank account.

HMRC may tell you the company is dormant

Sometimes HMRC will write to you and say that it intends to treat the company as dormant.

That may mean you do not have to pay Corporation Tax or continue filing Company Tax Returns while the company remains dormant.

However, that does not transfer responsibility away from you.

If the situation changes and you start trading again, you need to tell HMRC.

In other words, HMRC may say, based on the information it currently holds, that you do not need to file.

Meanwhile, you remain responsible for letting HMRC know when those circumstances change.

What if HMRC has already issued a notice to file?

This is another important practical point.

If HMRC has already issued a notice requiring a Company Tax Return, you should not simply ignore it because you believe the company is dormant.

You may still need to submit the return online and use that process to show HMRC that the company was dormant for the relevant period.

Once HMRC accepts the dormant position, you will not normally need to keep filing Company Tax Returns unless HMRC asks for another one or the company becomes active again.

How to tell HMRC your company is dormant

If your company has stopped trading and has no other income, tell HMRC that it is dormant for Corporation Tax.

That keeps the Corporation Tax position aligned with what the company is actually doing.

However, remember that telling HMRC the company is dormant does not remove the Companies House requirements.

You still have annual accounts and the confirmation statement to deal with.

This is exactly why the two definitions need to be kept separate in your mind.

Restarting a dormant company

If the company starts trading again, tell HMRC and bring the company back into the Corporation Tax system.

You will then need to deal with the normal accounting and Corporation Tax obligations that come with an active business.

Funding by itself is not the key test.

Instead, look at what the company actually starts doing with that funding.

For example, if a CIC receives funding and then begins carrying out its activities, that is the point where you need to reassess the company's dormant position and make sure HMRC receives the right information.

You may also find our guide to limited company tax treatment useful once the company becomes active.

A simple dormant-company checklist

If your company is inactive, work through these questions:

• Has the company had any significant accounting transactions?
• Has it carried out any genuine business or trading activity?
• Has it received investment or other income?
• Have you filed the annual accounts with Companies House?
• Is the confirmation statement up to date?
• Does HMRC know the company is dormant for Corporation Tax?
• Has HMRC issued a notice requiring a Company Tax Return?
• Has the company started trading again since HMRC treated it as dormant?

The answers tell you which obligations still apply and which regulator you need to deal with.

Common dormant-company mistakes

• assuming a quiet company is automatically dormant
• thinking a dormant company does not need Companies House accounts
• forgetting the confirmation statement
• treating Companies House and HMRC dormancy as the same test
• ignoring a notice to file from HMRC
• failing to tell HMRC when trading restarts
• assuming a few transactions cannot make the company active
• waiting until penalties arrive before checking the company's status

Most of these problems come from treating dormancy as "nothing is happening" rather than checking the actual legal and tax position.

FAQs

What is a dormant company?

The answer depends on who is asking. Companies House looks at whether there have been significant accounting transactions, while HMRC looks at whether the company is active or within the Corporation Tax regime.

Does a dormant company have to file accounts?

Yes. A limited company still has to send annual accounts to Companies House even when it is dormant.

Does a dormant company need a confirmation statement?

Yes. Dormant and non-trading companies still need to file a confirmation statement with Companies House.

Do Companies House filing fees stop a company being dormant?

No. Companies House disregards certain transactions for this purpose, including relevant filing fees, late-filing penalties and the original subscriber share payments.

Do I have to tell Companies House when a dormant company starts trading?

You do not normally need a separate notification. The next non-dormant accounts you file will show that the company is active again.

Do I have to tell HMRC when a dormant company starts trading?

Yes. You should tell HMRC when the company begins trading again so that the Corporation Tax position can be updated.

Can a company be active even if it has only a few transactions?

Yes. A small number of genuine business transactions can still amount to activity. The number of transactions is not the deciding factor.

What if HMRC sends a notice to file while the company is dormant?

Do not ignore it. You may still need to submit the Company Tax Return for that period and show HMRC that the company was dormant.

Episode Timecodes

• What dormant means for company directors - 00:00
• Company types and director obligations - 00:31
• Why low activity does not necessarily mean dormant - 00:53
• Companies House and HMRC use different definitions - 01:16
• Companies House filing duties for dormant companies - 01:38
• What happens if accounts and confirmation statements are late - 01:58
• Companies House definition of dormancy - 02:15
• Transactions Companies House ignores - 02:15
• Companies formed now but used later - 02:47
• Moving from dormant to active at Companies House - 03:03
• HMRC dormancy for Corporation Tax - 03:25
• Clubs, associations and flat management companies - 03:48
• What HMRC counts as trading - 04:06
• Why a few transactions can still mean active - 04:26
• When HMRC treats a company as dormant - 04:26
• Your responsibility when trading restarts - 04:50
• Telling HMRC the company is dormant - 05:15
• What to do after a notice to file - 05:15
• Restarting activity and maintaining compliance - 05:54
• Penalties and strike-off risk - 06:18
• Director responsibilities and final takeaway - 06:36

Related episodes and guides

• Responsibilities of a Director in a Limited Company
• Limited Company Tax Treatment
• How to Change from Sole Trader to Company

Key takeaway

Dormant company accounts are not simply about whether your company feels inactive.

Companies House and HMRC use different tests.

Even when the company is dormant, Companies House still expects annual accounts and a confirmation statement.

Meanwhile, HMRC needs to know when the company is dormant for Corporation Tax and when it starts trading again.

Most importantly, a small amount of activity does not automatically mean the company is dormant.

“There are obligations placed on us running companies. We need to make sure that we pay attention to what those obligations actually are.”

Further Support

If you are unsure whether your company is dormant, whether a Company Tax Return is still due or what you need to do before restarting the business, you can contact us for an initial chat.

We can help you understand the accounting, Corporation Tax and company-compliance steps that apply to your situation.

You can also use our free online business calculators to support your wider financial planning.

For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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What does the term dormant mean to you? More specifically, what does it mean to you if you're the director of a company? Now the idea of dormancy is important, and in this week's I Hate Numbers podcast, I'm going to be looking at the idea of what dormant actually means, what it means both for Companies House and for HMRC, unfortunately they're not the same, what action you need to take if your company is classified as dormant, and what do you do when it's no longer dormant.

Let's crack on with the podcast.

Now if you're a director of a company, now whether that company is one that's limited by shares, so private ownership, whether it's a limited by guarantee, whether it's a community interest company, it matters not. Your obligations to a large extent are the same when it comes to Companies House, and they're the same when it comes to HMRC, specifically with reference to corporation tax.

So let's get into it. So what does the idea of dormancy mean? Now, in some people's minds, when they hear that word dormant, it means, it's not doing a great deal, there might've been a few transactions during the course of a financial year. Therefore, in their minds, it's dormant, and therefore that might influence the action they take or the action they don't take, which could lead into fines and penalties by the regulators.

Now the general idea is that your company is considered dormant or association, so the regulations apply to clubs and associations, if it's not doing any business, it's not trading, and it doesn't have any other income like investment income. Now stated, the term dormant means different things depending whether you're dealing with Companies House or Her Majesty's Revenue and Customs to give it its full name.

We're going to refer that as HMRC. Let's look at Companies House first of all. Now, even if your limited company is dormant, you still must file your confirmation statement, which used to be called the annual return, and you must file annual accounts with Companies House. Now, the content of those accounts will be light touch, but they still have to be filed and submitted.

Now, this is even the case, even if there's been no financial activity whatsoever during the course of the year, and you don't have to file for corporation tax purposes. As I said, the content, the amount of information may be light touch, but it still has to be fine. And if you don't file them, by the way, by the due date, you will get a fine.

If you don't file your accounts on time, if you don't file your confirmation statement on time, you run a real risk of your company being removed from the register by the regulator. When is a company dormant according to Companies House? Now Companies House considers your company dormant if it hasn't had any significant transactions during the year in question. Now significant transactions don't include the finding fees that you have to pay to Companies House, doesn't include penalties for if you're late filing your accounts, and it doesn't include the money the funds you provide,

when the shares were initially acquired when the company was incorporated. Now, if you are dormant, so many clients that I've come across may form a company or request us to form a company because they want a name. They should get things set up, but they don't intend to do anything with that for some time.

Now, the good thing is if you do start to move from dormant to active trading, then you don't need to inform Companies House of that. Companies House is a regulator, it’s a repository of that information and its responsibilities I'm going to be talking about in a future podcast. When you do submit those accounts when they're no longer dormant, you stipulate that within the accounts themselves.

Let's have a look at the situation for HMRC specifically with reference to corporation tax. Now your company is normally considered dormant for corporation tax if it has ceased trading, has no other income like investment income. It may be a new company that hasn't actively started trading, and remember this applies whether it's a company limited by shares, limited by guarantee, a community interest company.

If you have an unincorporated association like a club. Clubs come under the regime of corporation tax, by the way, and if you own less than 100 pounds, that's perfectly fine. If you also are a flat management company, typically found in the arena of property, that also suits the definition. So, what does trading actually mean?

Well, trading will include activities where you buy and sell goods or services. You rent out property, you expend funds on advertising, taking on staff, generating interest on deposits. It doesn't have to mean that you're generating a profit, but there is a financial activity, even if you've only got say a half a dozen transactions during the course of the year.

That is an active company. Now, HMRC does give further detailed guidance on what counts as dormant for corporation tax purposes, or check the notes here, give us a call, and we can advise you accordingly, speak to your accountants. If you don't have one, then you need to find one. Now, in addition, HMRC may issue correspondence to you, may issue a letter saying that they have decided to treat your company, or association as dormant.

They will stipulate and state that you don't have to pay corporation tax or file company returns, and there's a little bit of a caveat here. If you do receive such a letter, but then you do start trading, it's your responsibility to file the corporation tax return accordingly. This is HMRC effectively saying, from what we've seen, you don't have to file a corporation tax return, but it's your responsibility to inform us if the situation changes.

Let's now look at what happens when your company is dormant and what you need to do with respect to HMRC. Now if your company has stopped trading, it's got no other income, then it's up to you to inform HMRC that the company is dormant for corporation tax purposes. If HMRC has actually issued what's called a notice to file, a notice to deliver a corporation tax return, you need to file a return online. Within that corporation tax return, there is the facility to notify HMRC that the company is dormant and fingers crossed their systems work effectively and they can join the dots. Now if you are in a situation where your company is dormant and then the company starts trading or the company receives funding,

if you're a C.I.C., you're funding, that means that you can actually commence, then there are certain steps you need to take to make sure you maintain compliance. The key one is, is to make sure HMRC is informed, to make sure those accounts are filed on time, and remember, folks, just to wrap up, even if there is no financial activity occurring, Companies House will expect accounts from you and the confirmation statement as a bare minimum.

The consequences of not listening to the rules, if you're a company, is that you will face a financial penalty and potentially an adverse credit risk rating as well on the company, and potentially if the confirmation statement is not filed on time, then that could mean your company is removed from the register.

I hope you found this podcast useful. There are obligations placed on us running companies. We need to make sure that we pay attention to what those obligations actually are. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.