If you’re thinking of taking a break from contracting through your limited company, you might be considering making your company dormant. Before you go through the process, it’s worth considering what is meant by dormancy.
In the first instance, the word dormancy is often used to describe a non-trading company; i.e. one that remains fully active but is currently not generating income. Caroola offers a non-trading package to cover situations where there may be a period of non-trading between contracts. We would expect that only necessary expenses are incurred and that directors’ salaries are ceased while on this package.
This gives you a considerable degree of flexibility. You’ll keep hold of the name you’ve chosen and be safe in the knowledge that you can pick things back up again when you’re ready.
If, however, you do not intend to trade through your company for the foreseeable future but aren’t yet considering closing the company then you may wish to make the company officially dormant.
What does ‘dormant company’ mean?
A dormant company is a company that is registered with Companies House but isn’t currently trading (i.e. carrying out any form of business activity, as defined by HMRC) or receiving any income.
There are two different definitions of a dormant company – one that applies to HMRC and Corporation Tax, and one that applies to Companies House. For Corporation Tax purposes, dormant companies are registered and have either stopped trading, have not started trading yet, is a club or association owing less than £100 in corporation tax, or is under flat management. For Companies House purposes, dormant companies are registered but have had ‘no significant accounting transactions’ during any applicable financial year.
Being dormant with Companies House does not automatically make you dormant with HMRC and vice versa, and there are steps to take to make your company dormant with both.
How to make a company dormant
Making your company dormant is relatively straightforward. There are just a few short steps to follow.
- Inform HMRC by post or using their online service that your company is dormant for Corporation Tax following submission of a Company Tax Return online
- If you’re registered for VAT, you’ll have to submit ‘nil’ VAT returns on the flat Rate Scheme or de-register altogether if you’re using the Standard Rate Scheme as refunds of VAT would constitute ‘significant transactions’
- Cease running payroll and consider closing down your PAYE scheme
- Prepare and submit dormant annual accounts to Companies House (this will advise them of the dormancy, you do not need to formally apply)
If you’re unsure about any of this, an accountant that offers dormancy services can help
What do dormant accounts mean with Companies House and HMRC?
Even if your company is dormant, you’re still obliged to file dormant company accounts. This means the company director remains responsible for submitting certain documents. All dormant companies have to file an annual Confirmation Statement (CS01) and dormant accounts (AA02).
After all of these documents have been filed, Companies House will show the SIC code 99999 – Dormant Company, meaning that your submissions have been received.
Once a company has been made dormant for Corporation Tax, HMRC will not issue further notices to submit a Company Tax Return or expect submission of one from your company until such time as you inform them that it has recommenced trading.
If you appoint an accountant, they can oversee all statutory filing for your limited company, including necessary paperwork, within the deadlines.
Deciding to make your limited company dormant
Your personal circumstances will dictate whether dormancy is right for you. Opting for a non-trading package is ideal if you intend to step away for a short period, or if you plan on contracting in the future and want to create a limited company before you’re ready to begin trading.
Making a limited company dormant is more beneficial if you do not intend to utilise it for a significant period of time, but want it to remain in existence, if, for example, you wanted to prevent anyone else using the company name.
Whatever your circumstances, we understand there are times when you might want to put your limited company on hold or at least explore the option.
How long can my company be dormant for?
There’s no maximum length of time that a company is permitted to remain dormant. But, given that you’ll still have to pay to file certain documents, it’s worth considering whether you plan to continue operating through your limited company in the future.
If you plan to work on the payroll, or through an umbrella company, for example, then keeping your limited company dormant will incur ongoing costs that you may prefer to avoid.
How do I make my company active again?
Once you’re ready to return to working through your limited company, it’s important that you notify HMRC within three months of beginning trading or receiving any income. You don’t need to tell Companies House, however.
Ultimately, making your limited company dormant is, for all intents and purposes, a case of pressing the pause button. That said, it’s not a decision that you should rush into. Contracting through a limited company is a flexible way of working, and can be very lucrative, too.
Unsure of the best option for your company? Get in touch