Dormant Company

Understanding a Dormant Company as Listed with Companies House

A dormant company in the UK is one that is not actively trading or conducting business activities, as defined by UK law. According to Companies House, a company is considered dormant if it has had no ‘significant accounting transactions’ during its financial year. This status is useful for individuals or businesses that wish to retain a company name or structure without engaging in daily operations.

Dormant companies play an important role in maintaining flexibility for future business ventures or protecting intellectual property without the need for active trading. In this article, we will explore the legal framework surrounding dormant companies, the requirements for company filings, and how to maintain company status with Companies House.

Legal Definition of a Dormant Company

In the context of UK Companies House, a dormant company is one that does not conduct any kind of significant financial transactions. This means that the company:

• Has not bought or sold any goods or services.
• Has not received any income or earned any interest.
• Has not paid any salaries to employees.

However, there are a few exceptions to this rule. Certain transactions such as payment of shares for initial company setup fees, filing fees to Companies House, or any penalties imposed for late submissions of accounts, do not affect the dormant status.

Filing Requirements for a Dormant Company

Although dormant companies are not active in trade, they still have legal obligations to fulfil in terms of company filings. These filings ensure that the company remains compliant with UK law and that its company status as dormant is maintained. The key filings include:

1. Annual Confirmation Statement: All companies, including dormant ones, must submit a confirmation statement once a year. This document provides Companies House with the latest information about the company, including details about directors, shareholders, and the registered office address.
2. Dormant Company Accounts: Dormant companies must submit simpler financial statements compared to active companies. Dormant company accounts generally include a balance sheet and a note confirming that the company has remained dormant throughout the financial year.
3. Corporation Tax: A dormant company may be exempt from paying Corporation Tax, but it is essential to inform HMRC that the company is dormant. Companies must ensure that they register with HMRC for Corporation Tax when they start trading and notify them when they cease trading to become dormant.

Failing to keep up with these legal obligations can result in penalties or even compulsory strike-off by Companies House, where the company is removed from the register.

When a Dormant Company Becomes Active

A dormant company can resume trading at any time, but it must notify both HMRC and Companies House of its change in company status. Once trading begins, the company is required to submit full financial accounts and comply with the regular corporate tax obligations of an active company.

Reasons for Keeping a Company Dormant

There are several reasons why a business might opt to keep a company dormant, such as:

• Protecting a business name: By registering a company as dormant, individuals can secure a business name without actively trading.
• Future Business Plans: Dormant companies provide flexibility for those planning to begin trading at a later date, allowing them to keep the legal structure in place without the immediate operational costs.
• Holding Assets or Intellectual Property: Some companies remain dormant to hold intellectual property rights or other assets while awaiting the right moment to begin trading.

Recent Legislation and Updates

The UK government regularly updates company law to improve transparency and ensure compliance. As of the latest legislative updates in 2023, dormant companies must remain vigilant regarding their filings to avoid penalties.

The 2022 Economic Crime (Transparency and Enforcement) Act introduced more stringent rules for companies, requiring transparency in filings. Dormant companies, just like active ones, are now subject to increased scrutiny on beneficial ownership to ensure they are not used as vehicles for illegal activities. The Registrar of Companies has also been granted more powers to query filings, including dormant accounts, if there are inconsistencies or concerns regarding the accuracy of the information provided.

Conclusion

A dormant company offers a flexible option for businesses or individuals not yet ready to trade but wishing to maintain a corporate structure. However, maintaining company status as dormant comes with legal obligations, including submitting company filings to UK Companies House. As long as these responsibilities are fulfilled, a dormant company remains a cost-effective and straightforward way to keep a business legally registered.

For further guidance, you can visit the following useful links:

1. Companies House – Dormant Company Guidance A clear guide provided by the UK government explaining the legal definition of a dormant company, filing requirements, and how to notify Companies House.
2. HMRC – Corporation Tax for Dormant Companies This link offers detailed information about Corporation Tax obligations for dormant companies, and how to notify HMRC when your company starts or stops trading.
3. Economic Crime (Transparency and Enforcement) Act 2022 A comprehensive overview of the new legislation that impacts all UK companies, including dormant companies, and their obligations to report beneficial ownership.

Our Business Data solution provides a comprehensive dataset listing all dormant and active UK companies. This dataset is updated daily and is linked to the company number for easy reference.