Guide to UK Dormant Companies

March 15, 2023

According to data from Companies House in 2022, 18.5% of British companies do not conduct any business at all during the year. These are dormant businesses.

It is crucial to know what a dormant company is and its legal requirements. Especially for those unsure about the nature of their company’s activities. Also, it is vital to understand dormant companies for companies that may wish to go dormant in the future.

In this guide, we’ll give you a thorough understanding of dormant companies in the UK. So, let’s get started!


What is a dormant company?

In the UK, a registered business is considered dormant if it has no significant accounting transactions during the financial year, such as:

  • buying or selling goods or services
  • paying salaries
  • receiving income from investments

Some common characteristics of a dormant UK company include NO:

  • significant financial transactions during a specific period
  • employees or business activity
  • sales or purchases of goods or services
  • trading activity or investments

A dormant company in the UK may still have assets, liabilities, and shareholders. But they are not actively engaged in business operations.


Legal requirements for a dormant company

When you set up a dormant company in the UK, your company must meet certain legal requirements. We’ve explained these legalities below:

Register a dormant company

To seek approval and register a dormant company with the UK House of Companies, you must have an incorporated company with them. So, you should complete the needed forms and give details, such as:

  • the company name
  • registered office address
  • details of the company’s officers
  • at least one SIC code for your company

File annual accounts

A dormant company may not be trading. But it must still file annual accounts with Companies House. Otherwise, you’ll have to face penalties. Also, your company might be struck off the register.

Submit a confirmation statement

You must submit a confirmation statement to the Companies House each year. This would confirm that your company’s details are up-to-date and accurate.

It costs £13 to file a confirmation statement online. But it costs £40 to file a paper form.


How to seek approval to make a company dormant?

Let’s explore how to set up a dormant company in the UK.

  1. In writing, communicate to the local Corporation Tax office, informing them of your intention to put the company on temporary hold.
  2. Ensure all outstanding Corporation Tax payments are settled and close the payroll system and settle any outstanding bills before declaring the company dormant.
  3. Go to the HMRC’s website portal to initiate the process of changing your company’s status to ‘dormant’ in their records. You must submit the Company Tax Return to HMRC if the company was active before applying for dormancy.
  4. Ensure you comply with Companies House’s obligation to avoid fines and penalties. Failure to comply with the requirements may result in the Companies House records being struck off.

To maintain compliance, you should adhere to all legal and regulatory obligations during the dormant period. Moreover, you must keep records and documentation to support the company’s dormant status for future reference.


How to close a dormant company?

If you need to close your dormant company, here is what you should know.

Voluntary strike off

A company can apply to be struck off the Companies House register if it has not traded or carried out any business activities for at least 3 months. Within 7 days after you submit the application to the registrar, the directors must send a copy to:

  • shareholders
  • creditors, including all existing and likely creditors such as:
    • banks
    • suppliers
    • former employees if the company owes them money
    • landlords or tenants
    • guarantors
    • personal injury claimants
    • HMRC and the Department of Work and Pensions
    • employees
  • managers or trustees of any employee pension fund

Risks and considerations when closing a dormant company

Consider the following risks before you think of closing your dormant company:

  • Before you close a dormant company, check that you have settled or transferred all outstanding debts and liabilities to another entity. Otherwise, you could be held personally liable.
  • You’ll have to repeat the entire company formation process if you decide to change your mind.

Also, note that the following are all offenses if you:

  • apply when a company isn’t eligible for a strike off
  • supply false or misleading information in support of an application
  • fail to give copies of the application to all parties concerned in a week
  • fail to withdraw an application once a company is no longer eligible

Pros and cons of a dormant company

Pros:

  • Shareholders of a dormant company are not personally liable for the company’s debts. This gives them limited liability protection.
  • When you register a dormant company, it protects its name and prevents others from using it.

Cons:

  • If company directors don’t file on time, they might have to pay fines.
  • The company would need annual company tax filing and reviews of corporation tax accounts.
  • Business owners may need to pay compliance fees.

Final Thoughts

It is crucial to understand the nature and legal needs of a dormant company in the UK. Also, note that a company is considered dormant if it doesn’t conduct significant financial transactions in a specific period.

Dormant companies do not actively engage in business operations. But they still have legal needs. For instance, you must file annual accounts and submit a confirmation statement.

You should consider the pros and cons of a dormant company before forming one carefully. Plus, ensure you have settled all outstanding debts and liabilities before closing it.

If you follow these guidelines, you can manage a dormant company in the UK in a successful way. But if you have questions about business formation, you can seek guidance from GJM & Co. Our experienced professionals can assist you with everything from income tax filings to accounts and bookkeeping.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.