A term which is often misused is that of a dormant company. There is a strict definition of what a dormant company is being one that 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.
For the purposes of this definition the following transactions can be disregarded:
- payment for shares taken by shareholders
- fees paid to the Registrar of Companies for a change of company name, the re-registration of a company and filing the annual Confirmation Statement
- payment of a civil penalty for late filing of accounts
Significant accounting transaction
Consequently this means that a company is not dormant if for example, but not limited to:
- There is interest received on the company bank account
- Accounting fees are paid
- Payments are made for a web site, hosting and email services
- There are any other business costs incurred
- Income is received
- Payments are made to a director for a salary, dividends or the repayment of a loan to the business
- Other loan payments are made
Any such transactions, all of which would need to be recorded in the accounts, will mean that the company must file accounts and corporation tax returns in the normal way.
There is no formal process to declare a company as dormant. Even if the company is dormant the usual filing duties must be adhered to, in particular you must file dormant accounts at Companies House by the due date and file the Confirmation Statement each year. You can tell HMRC that your company is dormant negating the need to file a Corporation Tax Return. Failure to tell HMRC could result in a late filing fine.
Protecting a business name
A company can be set up to protect a business name even if there is no intention for that company to trade. This is a practice sometimes used for those operating as a sole trader. The best way to do this is to set the company up with an SIC (standard industrial classification) code of 99999 being the code for a dormant company. This should indicate to HMRC that a corporation tax return is not required although it is prudent to ensure that they do update this on their records. So do not ignore any demands for filing a corporation tax return that you may receive from HMRC but contact them to explain the company is dormant.
It is worth stressing that a dormant company must file dormant accounts and an annual Confirmation Statement at Companies House even if nothing is due to be filed with HMRC.
How to file dormant accounts
If the company has never traded it is very easy to file dormant accounts yourself. You can do this at Companies House via their web filing facility which can be found at:
https://find-and-update.company-information.service.gov.uk/guides/accounts/chooser/dormant.
If you are unsure if your company qualifies as being dormant, i.e. it meets the no significant transactions rule, then it is best to seek advice from a suitably qualified accountant.