Our Guide to Dormant and Non-Trading Companies

Guide to what "Dormant" and "Non-Trading" means for a Limited Company

This guidance applies to Small Companies only.

Introduction

• The defintions of "dormant" and "non-trading" are not the same.

• Companies House and HMRC have different definitions and regulations for the terms "dormant" and "non-trading".

• When a limited company is first "incorporated" Companies House automatically informs HMRC. However, no further information passes between them on the subject of dormancy and trading / non-trading.

• It is the responsibility of the company's Directors to inform Companies House and HMRC of any changes to the dormancy and trading status of the company. Accountants can do this on the company's behalf.

• If a trading company now wants to become dormant / non-trading, having previously traded, the directors must:
     > Inform HMRC, to remove the requirement for a company tax return (reviewed by HMRC every 5 years)
     > File Annual Accounts as normal with Companies House
     > Note: filing Dormant Accounts on Form AA02 (or online) is not permitted
     > File the annual Confirmation Statement with Companies House

• Link to GOV.UK: Dormant companies


REMINDER: Companies House and HMRC have different definitions and regulations for the terms "dormant" and "non-trading".

HMRC Regulations

HMRC has the following definitions and regulations:

• A limited company is dormant from the day the company is first incorporated at Companies House to the day before the company starts trading.

• For this first period (no matter how long) when the company remains dormant for HMRC, there are no requirements to file Annual Accounts or Corporation Tax returns at HMRC.

• As Companies House directly informs HMRC when a new company is created, HMRC assumes that the company is trading from the outset unless informed otherwise. HMRC will write to the Directors at the company's Registered Office if HMRC is expecting Acccounts and Corporation Tax to be filed.

• The company's Directors must inform HMRC that a company has started trading within 3 months.

• Once a company has started trading, but then stops trading, for HMRC the company can be classified as "non-trading". The GOV.UK Webpage uses the term "Dormant for Corporation Tax" but technically it is now "non-trading". The company's Directors must inform HMRC if a company becomes non-trading, otherwise the company will be assumed to be trading, and all the tax filing requirements remain in place.

• HMRC will allow a company to be classified as non-trading for a period of up to 5 years. The company will not be required to file Accounts or a Corporation Tax Return at HMRC for this non-trading period.

• This is a link to GOV.UK: HMRC guidance on Corporation Tax: trading and non-trading

• No fee is paid to HMRC for dormant and non-trading accounting periods.

Companies House Regulations

If a company has never traded, and has "no significant transactions", then Dormant Accounts can be filed at Companies House online or using Form AA02.

If a company has once traded, it will never be able to file Dormant Accounts at Companies House using the online Dormant Accounts service or Form AA01.

The main practical reason (apart from the legal reason) is that the last trading Accounts will normally have a Balance Sheet with various balances remaining, and Dormant Accounts do not facilitate this.

For Small Companies, if there are no, or very few, transactions, an updated Balance Sheet may be straightforward to produce and therefore file at Companies House using the regular online Accounts filing service. As always, it is advisable to check with an experienced accountant. The fee for this service may be cheaper than the usual trading Accounts.

If there is a small number of transactions, it is advisable to check whether this constitues "trading" and therefore requiring Accounts and company tax return to HMRC.