Dormant Companies

The Rules And Regulations

Simply put, a dormant company is one that isn't currently trading. There are strict rules about what exactly constitutes a dormant company, but that doesn't mean that those rules are necessarily easily to grasp. In fact, Companies House and HMRC don't even adhere to the same precise definition so getting advice specific to your situation is vital.

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There are several good reasons why people choose to make their companies dormant, and a couple of them are particularly relevant to start-ups and smaller businesses.

A dormant company can be protected against the possible confusion or damage resulting from someone else using its name. Without that protection, there'd be nothing stopping someone else starting up a Limited Company with the same name as your Sole Trader business (assuming you haven't already trademarked it) and ruining your reputation or baffling your clients. On the other hand, if you set up a dormant Limited Company with the name, you know that no one else can do that. In fact, there are organisations that exist specifically for this purpose, essentially reserving your company name for your use only.

Alternatively, suppose you're touring the world in search of exotic materials to upgrade your robot soldier. You're not going to be turning the thing on until your triumphant return, but you need to know it'll still be in working order when you do. Making it dormant will mean a lot less hassle in maintaining it while you're gone.

You'll still have to file your annual accounts and do a certain amount of paperwork, but in general it's going to be a lot easier and mean juggling much less information. In particular, if any of your company's details change while it's dormant, such as its address or the names of its Directors and Secretary, you'll need to make sure Companies House is notified. The penalties for failing to do so are predictably eye-watering - even including prosecution and a possible criminal record.

If, for whatever reason, the titanic robot soldier you designed and built has laid down its atomic blaster and entered an energy-saving low power mode but you haven't pulled the plug just yet, the first thing you need to do is talk to someone at your Corporation Tax office. As with all your dealings with HMRC and Companies House, you need to be absolutely sure you're keeping within the rules.

Contact RIFT Accounting and we'll show you the best ways to organise and protect your Sole Trader business, Limited Company or titanic robot soldier so it leaps back to life when you fire it up again.

According to Companies House, a dormant company is one that has "no significant accounting transactions" during the accounting period - where "significant" means one that should be entered in its accounting records. By those terms, the only kinds of transactions a dormant company is allowed to make are:

  • Payments for shares taken by subscribers to the memorandum of association.
  • Fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing annual returns.
  • Payment of a civil penalty for late filing of accounts.

On the other hand, HMRC describes a dormant company as one that's "not active, not liable for Corporation Tax or not within the charge to Corporation Tax". By that definition, some examples of a dormant company might include:

  • A brand-new company that hasn’t even started trading yet.
  • An "off-the-shelf" company held by a company formation agent ready to be sold on.
  • An existing company that has traded in the past, but is not currently trading.
  • A company that will never trade because it has been formed solely to hold an asset, such as property.

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