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. When determining whether a company is dormant you can disregard the following transactions:
- payment for shares taken by subscribers to the memorandum of association
- fees paid to the Registrar of Companies for a change of company name, the reregistration of a company and filing annual returns
- payment of a civil penalty for late filing of accounts
What are the conditions that a dormant company must meet to be exempt from audit?
A dormant company is exempt from having an audit for that financial year if:
- it has been dormant since its formation or
- it has been dormant since the end of the previous financial year and it meets the following conditions:
- it is entitled to prepare individual accounts in accordance with the small companies regime
- it is not required to prepare group accounts
- it qualifies as a ‘small company’ in relation to that year, or would have qualified as small but for the fact that it is a public company or is a member of an ineligible group
What exemptions are available?
Dormant companies can claim exemption from audit and need only prepare and deliver to Companies House an abbreviated balance sheet and notes. They do not have to include a profit and loss account and directors’ report in dormant company accounts filed at Companies House, but they must provide a directors’ report to members.A company may not take advantage of the dormant company audit exemption if at any time in the financial year in question it:
- is a public company unless the company is dormant
- is an authorised insurance company
- a banking company
- an e-money issuer
- a MiFID (ie Markets in Financial Instruments Directive) investment firm
- a UCITS (i.e.Undertakings for Collective Investment in Transferable Securities) management company;
- carries on insurance market activity
Nor can a company take advantage of the dormant company audit exemption if an audit is required by a member or members holding at least 10% of the nominal value of issued share capital or holding 10% of any class of shares; or – in the case of a company limited by guarantee – 10% of its members in number. The demand for the accounts to be audited should be in the form of a notice to the company, deposited at the registered office at least one month before the end of the financial year in question. The notice may not be given before the financial year to which it relates.
What information must dormant company accounts contain?
Once the definition of a Dormant company has been established accounts submitted to Companies House need not include a profit and loss account or directors’ report.Unaudited dormant accounts are much simpler than those of a trading company but must contain:
- a balance sheet containing statements above the director’s signature and their printed name to the effect that the company was dormant throughout the accounting period
- any previous year’s figures for comparison – even though there are no items of income or expenditure for the current year;
- certain notes to the balance sheet
The right to prepare a dormant balance sheet for filing at Companies House does not affect the company obligations to prepare full accounts for its members.