How to make your company dormant

If you’re thinking of taking a break from contracting through your limited company, you might be considering making your company dormant. This essentially means that you won’t be trading through it for a short while.

This gives you a considerable degree of flexibility. You’ll keep hold of the name you’ve chosen, and because you won’t be carrying out any business activities through your limited company, you’ll have much less admin to manage.

It also means you can take some time away from contracting, and be safe in the knowledge that you can pick things back up again when you’re ready.

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.

How to make a company dormant

Making your company dormant is relatively straightforward. There are just a few short steps to follow.

  • Inform HMRC that your company is dormant by filing the AA02 form or a Company Tax Return online
  • Prepare and submit annual accounts to Companies House (called ‘dormant accounts’ if you’re a small business) as you normally would
  • If you’re registered for VAT, you’ll have to submit ‘nil’ VAT returns (or de-register altogether if you’re not planning on working through your limited company again)
  • If you’re not planning on returning to working through your limited company in the same tax year, you should also close down your PAYE scheme.

If you’re unsure about any of this, an accountant that offers dormancy services can help.

What do dormant accounts mean with Companies House?

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), Corporation Tax (CT600) and annual 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.

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. Making a limited company dormant 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.

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.

As part of Caroola's non-trading accountancy package, we’ll notify HMRC on your behalf so that you don’t have to worry about it – you can get back to doing what you do best.

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.

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