Dormant companies: the lowdown

A dormant company does not trade. The reasons why people use dormant companies include:

• To protect a trademark or brand name to prevent competitors from using that name.
• To establish an entity in advance preparation for a new project.

Administration of a dormant company:

A dormant company must comply with all Companies House and HM Revenue & Customs filing requirements, these include: 

The directors are still liable to complete an Annual Return to Companies House (£14 if you file online, or £40 if you file a paper return).

All dormant companies, even those who have not traded, must file annual accounts at Companies House.  This comprises a balance sheet and relevant notes for dormant companies.

For Companies which have never traded, they can file their annual accounts electronically at Companies House or on a Dormant Companies Accounts (DCA) document.  Companies who traded in the past, but have become dormant may be able to use the DCA form, but only if no transactions have been recorded in the current financial year and no residual balances exist. Company House penalties still apply to late filings.

During this time, the company must not generate any transactions at all, otherwise you will have to submit full accounts to Companies House, and meet any liabilities arising.

If you decide to appoint a Company Secretary, Director, or any of their details change while the company is dormant, you must notify Companies House via the correct form.  Also, a dormant limited company must have a registered address.

The directors should register the company trading status at HMRC.

File form CT600 Corporation Tax return at HMRC by filing online.  Penalties still apply to CT600 late filing.  It may be possible to get HMRC agreement that no return is required;

Where the company has become non-trading then it may be that certain nil returns for the Construction industry scheme, VAT and Annual PAYE/NIC forms are required to be filed. Consider de-registering for VAT and cancel PAYE schemes to avoid having to argue penalties and assessments down to nil by filing nil returns.  If the company is being struck off or is going into liquidation, penalties may not need to be paid but accounts still need to be prepared for Corporation Tax purposes.

Much simplified company dormant accounts apply if:

• No "significant accounting transactions" have taken place from the beginning to the end of the accounting period and;
• No significant entries have been made through the company bank account.
• No dividends have been paid.
• No other events have taken place which would require an entry in the company accounts.

A single transaction will void the dormant status, unless the transactions identify the original formation share capital only.  Closing the company bank account is the simplest way to keep a company dormant.  The directors should consider not opening a company bank account until the company is  ready to trade.  A guide to Dormant Companies can be found on the Companies House website (Chapter 8 of Guide GP2).

Ward Williams has a fixed fee for preparing accounts and covering the corporation tax aspects for dormant companies and other nil returns. We also quote a competitive fee for companies which are almost dormant.

For further information/advice on this topic please visit www.wardwilliams.co.uk