How Do I Make a Company Dormant in England?

If you have a limited company in England that is not actively trading, the company may qualify for dormancy status. This article will explain the conditions your company must meet to be eligible for dormancy status. It will then look at the practical effects of dormancy, including your notification obligations. 

What is a Dormant Company?

A company is dormant if it has no significant accounting transactions during its accounting period. A significant transaction is any transaction other than:

• issuing any shares to the individuals that signed the company’s memorandum when it was incorporated (i.e. the company’s founders); 
• fees paid to Companies House to change the company’s name; and 
• any penalty payment made to Companies House for not filing your company’s accounts. 

If money changes hands between your company and anyone else aside from these three exceptions, your company may lose its dormancy status or become ineligible for dormancy. 

In some circumstances, the law may allow a company to enter into contracts without affecting its dormancy status or potential to acquire dormancy. However, if the contract results in the company engaging in any transaction, this will be considered a significant transaction. 

Practical Effect of Dormancy 

Dormancy means something in the following contexts:

• your company’s corporation tax liability; or 
• your company’s obligation to file its annual accounts with Companies House. 

Corporation Tax 

All limited companies pay corporation tax. There are two circumstances where the law considers your company dormant for corporation tax purposes. Either where:

• you have incorporated your company, but it has not yet started trading; or 
• it used to trade but now no longer does. 

In both cases, trading here simply means engaging in any commercial enterprise or activity where you sell goods or services in exchange for money. It does not apply to pre-trading activity, where you incur costs to set up your business, but your company has not charged anyone else. 

Accounts

Provided your company qualifies for dormancy status, it may not have to file audited accounts. Instead, it can file dormant accounts. 

In practice, companies with a turnover of less than £10.2m do not have to file audited accounts when trading. Therefore, if you intend to avoid preparing audited accounts and your turnover is less than the threshold, dormancy status will not change anything. 

The law has two sets of rules depending on if:

• your company has been dormant since incorporation; or
• your company was incorporated to trade but later became dormant. 

Dormant Since Incorporation 

You do not have to prepare audited accounts if your company meets the following requirements:

• the company is not an insurance, banking, investment company, or otherwise operating in the regulated financial services market; 
• none of the company’s shareholders who — in aggregate — hold 10% or more shares in the company have demanded an audit in the past year; and 
• the accounts include a balance sheet and accompanying notes along with the previous year’s figures (even if these figures show no trading activity).

Companies Not Dormant Since Incorporation 

To qualify for the dormancy audit exemption, your company must satisfy the following conditions:

• it must have been dormant since the end of the previous financial year; 
• it is a small company for the purposes of company accounts (in practice, this is a private company with a turnover of less than £10.2m); 
• it does not have to prepare group company accounts;
• it is not involved in any regulated financial activities; 
• none of the company’s shareholders with 10% or more shares in aggregate have demanded an audit; and 
• the accounts include the same particulars as required for companies dormant since incorporation. 

Registering Your Company for Dormant Status

If your company is dormant for accounts purposes, it will be dormant for tax purposes. Where this is the case, you will need to alert Companies House through their e-filing system. 

Key Takeaways 

Dormancy refers to a company that is not trading. A dormant company can be incorporated as such, or it may be a company that used to trade but now does not. A company may be dormant for tax purposes (HMRC) or accounting purposes (Companies House). In most cases, where a company is dormant for one purpose, it will be dormant for another. Dormancy for tax purposes exempts the company from any corporate tax liability to HMRC, which makes sense given that there is no money exchanging hands and therefore no profit. Where a company is dormant for accounting purposes, it does not have to file audited accounts. Instead, it can file dormant accounts, which simply require a balance sheet and certain statements of facts. 

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