A dormant company is one that is not doing business or earning money. As far as HMRC is concerned, this makes it inactive for Corporation Tax purposes. It also means that abridged and unaudited accounts, known as 'dormant company accounts,' can be sent to Companies House in certain circumstances.
Dormant Company Accounts Service – only £39.99
Despite this, many business owners continue to file full financial statements when they are not required. Here, we'll go over the options for dormant company accounts, as well as the requirements you must meet in order for your company to be considered dormant by both HMRC and Companies House.
We'll also go over the legal obligations you have as a dormant company.
Is there agreement between Companies House and HMRC on the meaning of dormancy"?
Companies House defines dormancy as "no significant accounting transactions during the accounting period." As a result, it cannot have generated income or earned bank interest.
Even if someone traded for a short time, they are considered active in the eyes of Companies House and must file a full set of accounts for the fiscal year.
Small dormant companies, on the other hand, can claim exemption from audit or filing full accounts under section 480 of the Companies Act 2006.
Filing online is only possible if you have the company's authentication code.
HMRC is only interested in corporate activity if it is likely to result in a Corporation Tax liability. It considers a limited company dormant until the day it begins trading (regardless of how long that takes), and there is no need to file tax returns. HMRC must be notified within three months of the start of trading.
If a company ceases trading, HMRC classifies it as 'non-trading' but 'dormant for Corporation Tax'. HMRC will permit a company to remain in this state for a maximum of five years.
What qualifies a company as "dormant" for HMRC purposes?
A business is considered dormant if:
It has ceased trading and has no other source of income, such as investments.
It is a new limited company that has not yet begun trading – tax returns are not required until the company begins trading.
It is an unincorporated club or association run for the benefit of its members that owes less than £100 in Corporation Tax.
HMRC may treat a flat management company as dormant at times.
To learn more, consult HMRC's official guidance on what is active and dormant for Corporation Tax purposes.
What are the accounting advantages of registering a company as dormant?
A company that is both'small' and 'dormant' has a significantly reduced statutory burden, only having to submit an unaudited, abridged balance sheet and certain notes to Companies House, as well as file an annual Confirmation Statement (previously known as a 'annual return'). It will not have to file a profit and loss statement or a directors' report.
Read GOV.UK's guidance on dormant company accounts to learn more.
How do I notify HMRC that my company has ceased operations?
To notify HMRC that your company has gone dormant, contact the Corporation Tax Department by phone or in writing. You must do this within three months of going dormant. When you call, have your 10-digit Unique Tax Reference handy.
What does it mean to be dormant for Companies House, and when is a company exempt from audit?
Even if your company is dormant for Corporation Tax and Companies House, you must still file an annual Confirmation Statement (formerly known as a 'annual return').
However, if your company is dormant according to Companies House and also qualifies as a small company, you can file dormant company accounts without including an auditor's report.
A company is classified as'small' if at least two of the following conditions are met:
Its revenue is less than £10.2 million.
Its balance sheet shows less than £5.1 million.
It employs fewer than 50 people.
If this is the case, you can:
Use the exemption to avoid having your company's books audited.
Choose whether or not to send a copy of the director's report and profit and loss statement to Companies House.
Send abridged accounts to Companies House.
You must still send statutory accounts to your members and HMRC as part of your Company Tax Return.
Comments