Many business owners choose to form a company with the intention of leaving it dormant. This can be for many reasons, but the most common purpose would be when you have found the perfect company name for your business, but you are not quite ready to get it going yet and in the meantime you would rather not let that name be snapped up by someone else – especially not by a close competitor!
So, how do you make your company dormant?
First, it would be useful to understand exactly what a dormant company is in the eyes of Companies House, this way you can make sure that your company really is sitting dormant and complying with the law. According to Companies House; “A company is dormant if it has had no ‘significant accounting transactions’ during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records”
Although there is no official form to complete to state that your company is dormant, it is always worth notifying HMRC in writing that you do not intend to trade right away with your company. This should save you from receiving any requests to complete a tax return. You can write to your nearest tax office to inform them of this.
Year 2 of your business
In your second year after formation, you will need to complete some official updates for Companies House to keep your company records updated. You will be asked for your Annual Return that will contain your statutory information and any changes you may have made during the year, such as adding new shareholders for example, which will then be updated at Companies House.
You will also be asked to give your Standard Industry Classification code. This code is used to indicate your company’s nature of business, and at the same time you can also submit the code for a dormant company, which is 99999.
Usually about 21 months after your company formation, you will receive a request from Companies House to file your first set of Annual Accounts. Unless you have started up your business during this time, you will only need to file Dormant Company Accounts, which are a set of very basic forms to complete. Even when you are choosing to keep your company dormant, you will still need to submit your Annual Accounts by the deadline for submission or you could find yourself facing a penalty in the form of a fine for late submission.
Each year following
Regardless of whether your company is dormant or not, you will need to file an Annual Return and Annual Accounts each year to Companies House. If your company remains dormant, then you simply file Dormant Company Accounts each year. You will not be liable for paying corporation tax until your company starts to actively trade.
There is no time limit for keeping a company dormant, so you do not need to worry that Companies House will ‘strike-off’ your company through inactivity. As long as you keep your Annual Returns and Annual Accounts up to date with Companies House each year, you can leave your company in an ongoing dormant state.
Even though you have registered your company as ‘Dormant’ with Companies House, your company’s status will be listed as ‘active’ on their system. This does not mean that your company is listed as trading, it just means that it listed as a current business. When a business owner decides to close down a company, the status will be changed from ‘active’ to ‘active – proposal to strike off’. Once it has been closed down the status will be changed to ‘dissolved’.
