Can a dormant company have expenses?

Maintaining a dormant company is a good way to keep your business in the public domain without actively running it. This makes sense in circumstances such as taking a break from trading or registering a limited company to protect your name so that competitors can’t use it.

But a dormant company isn’t simply an entity that you can put on the shelf and forget about. Dormant companies must be managed and there are strict rules in place to ensure you can keep your status.

In this post, you’ll learn what these rules are, as well as your requirements as a business owner and what expenses a dormant company incurs. We’ll also show you what to do if you want to make your company dormant as well as how to reactivate it when the time’s right.

Table of contents 

• What is a dormant company?
• Your responsibilities as a dormant company owner
• How to make your company dormant
• How to make your dormant company active
• Expert insights
• Wrapping up

What is a dormant company?

When you register a limited company in the UK your company is incorporated and Companies House automatically informs HMRC of this fact.

However, this is as far as communication goes between the two government agencies. No information is passed between them on your company status, therefore, letting them know your company is dormant is the responsibility of the company director (i.e. you).

However, the fact that the two agencies don’t share information goes beyond the simple fact of record keeping. Companies House and HMRC each have their own definition of “dormant”, which means that while you can be dormant in the eyes of HMRC, Companies House may see you as active.

If that sounds confusing, don’t fret. We’re going to walk you through exactly how each agency defines what a dormant company is as well as how to ensure your status is accurately recorded on all accounts.

How Companies House defines a dormant limited company

Companies House sees a company as dormant if it has had “no significant accounting transactions” during the accounting period.

A significant accounting transaction is defined as one that the company should enter into its accounting records. This means that any type of payment or receipt of payment, no matter how small or trivial, will stop your company becoming dormant, in the eyes of Companies House.

The only exceptions to this are:

• Payments for shares from the first shareholders or subscribers of your company
• Paying filing fees to Companies House
• Paying late filing penalties to Companies House

The “no significant accounting transaction” aspect is an important distinction between a dormant company and a non-trading company.

You can be defined as a non-trading company and still have transactions going through your books. This is not the case for dormant companies.

For example, your company might not be selling, but you may still be paying rent for your office and these charges will show on your business bank account. These are significant transactions that will make your company appear active, thus disqualifying you from being labelled a dormant company but allowing you to remain a non-trading company.

To stay dormant rather than non-trading, you need to avoid all business financial activity other than your requirements to Companies House.

How HMRC defines a dormant limited company

According to HMRC, for Corporation Tax purposes, a dormant company must meet one of the following criteria.

• A new company that’s not yet trading
• An ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
• A company that will never be trading because it has been formed to own an asset such as land or intellectual property
• An existing company that has been, but is not currently, trading
• A company that’s no longer trading and destined to be removed from the Companies Register

If you run a club or unincorporated organisation, it will be dormant for Corporation Tax purposes if it’s active but both of the following conditions apply:

• Your organisation’s annual Corporation Tax liability must not be expected to exceed £100
• You run your club or organisation exclusively for the benefit of its members

A company will forfeit its dormant status and become active for Corporation Tax purposes if it is:

• Carrying on a business activity such as a trade or professional activity
• Buying and selling goods with a view to making a profit or surplus
• Providing services
• Earning interest
• Managing investments
• Receiving any other income

Your responsibilities as a dormant company owner

Understanding how Companies House and HMRC define a dormant company is critical in helping your company maintain its dormant status.

It also helps to answer the big question of can a dormant company have expenses?

Generally speaking, under both Companies House and HMRC rules, no. 

To maintain a dormant company, expenses from a business bank account need to be avoided to prevent significant accounting transactions.

A business bank account from Tide makes it easy to track expenses so you never have to worry about unexpected transactions 🔥

While HMRC’s focus on not trading will allow you to have certain expenses without doing business, Companies House’s definition prevents any kind of business-related transaction.

This means activities such as paying salaries (PAYE), issuing dividends, property costs, legal and professional fees, bank charges and buying and selling goods or services are forbidden.

That said, keeping your company dormant is not completely cost-free. Meeting your responsibilities as a director will mean incurring some costs.

Maintaining a dormant company with Companies House

For as long as your company is dormant you’re required to keep Companies House updated on its status and accounts. This means filing an annual confirmation statement and annual accounts.

Filing an annual confirmation statement

An annual confirmation statement must be submitted to Companies House at least once every 12 months (from the anniversary of your company incorporation or the ‘made up’ of your last statement) whether your company is dormant or active.

The statement provides important information about your company that’s used to ensure details held on the public record are accurate and should include:

• Company name
• Company registration number
• Registered office address
• Single Alternative Inspection Location (SAIL address)
• Standard Industrial Classification (SIC) code
• Director details
• Secretary details
• Shareholder and guarantor details
• People with Significant Control (PSC) register information
• Share capital information

Your confirmation statement needs to be filed even if the information on record is up to date along with a filing fee (currently £13) payable to Companies House.

The confirmation statement fee is one of the specific accounting transactions that you’re allowed to put through your company records and submit on your accounts without losing your dormant status.

Filing annual accounts

Annual accounts have to be submitted to Companies House by the same deadlines (nine months after the end of your financial year) as if you were trading. You need to do this for every year your company is dormant.

Thankfully, dormant company accounts (DCA) are simpler to prepare and require less information. Which details you need to include depends on whether your company qualifies as a ‘small company’ or ‘micro-entity’.

Annual accounts for small companies

You’re classed a small company if:

• You have no more than 50 employees
• Your turnover is no more than £10.2 million
• You have no more than £5.1 million on your balance sheet

If this is the case, you’re able to submit simplified ‘abridged accounts’ that include a stripped back version of your balance sheet and profit and loss statement, along with any relevant notes related to information on the account.

Annual accounts for micro-entities

You’re classed as a micro-entity if:

• You have no more than 10 employees
• Your turnover is no more than £632,000
• You have no more than £316,000 on your balance sheet

Dormant company accounts for micro-entities can be applied using the Financial Reporting Standard (FRS) 105, which allow you to include only a balance sheet and simplified profit and loss statement, along with your signature (or the signature of another director) and relevant notes.

Accounts can be filed online using form AA02. There are no fees that need to be paid to Companies House for this, but you’ll need to be careful about using an accountant.

Because there are no expenses or trading activity figures to account for, dormant accounts are easier to file than if your company was trading, so you may decide to file and submit them yourself.

If you do decide to hire an accountant to take care of the paperwork for you, it’s important that you pay them from your personal bank account. Paying an invoice from your company account will be seen as a significant transaction, resulting in you losing your dormancy and having to submit full, detailed accounts.

Where fees may arise is for late filing of accounts. If you miss the deadline, HMRC will issue an automatic penalty of £150 for accounts that are up to one month late, rising to £1,500 for accounts that are more than six months late. 

Penalties are doubled if you file accounts late two years in a row.

While you’ll want to avoid a penalty, if you are hit with one it can be paid by your company and submitted on your company accounts without affecting your dormant status.

Top Tip: Whether you plan to work with an accountant or manage your own accounts, understanding how your accounts work is critical in running a dormant or active business. To learn the basics of what small business accounting entails, check out our complete guide to small business accounting 💡

Changing your company name

Changing the name of your company is another cost that Companies House allows you to put through your company books without triggering a significant accounting transaction.

You can change your name at any time by completing form NM01.

The cost of filing a paper NM01 form is £10. Completing the form online costs £8.

Top Tip: If you’re a small business owner wanting to change your company name but you’re struggling for ideas, take a look at our guide to finding the perfect name for your small business 💡

Maintaining a dormant company with HMRC

As long as your company is dormant you won’t have any tax liabilities and won’t have to file Corporation Tax returns with HMRC.

However, if your company becomes dormant or starts trading at any point in a financial year, you’ll need to pay tax on any taxable income earned during that period. This will mean submitting full accounts along with a Corporation Tax return.

If your company is registered for VAT, you’ll also need to continue to send ‘nil’ VAT returns for as long as you’re dormant.

Top Tip: VAT returns are complicated and the last thing you want to do is forget to file a VAT return and subsequently get hit with a penalty from HMRC. To ensure this doesn’t happen, even if you are only filing a ‘nil’ return, read our detailed guide to how to avoid and rectify common VAT mistakes 📌

How to avoid incurring expenses

Given how strict the rules are, maintaining a dormant company can feel like walking a tightrope at times.

To avoid any risk of falling foul of Companies House and HMRC, it might be a good idea to close any business accounts you have relating to your company. This will eliminate any confusion over whether a transaction is significant.

If you want to start trading again in future, opening a new account is easier than ever. With Tide, for example, you can open a business bank account for free within minutes and experience the power of consolidating all of your business finances in one place.

In the time your company is dormant you can cover costs like incorporation fees or legal and professional fees through a personal account.

Before you contact your provider to close down a business account, make sure that all bills, charges and fees are settled and direct debits and standing orders are cancelled.

You might also need to make suppliers aware that no future transactions will be made through the account.

How to make your company dormant

If you decide to make your company dormant, the first thing you should do is cease all trading and close down your business operations.

Along with closing your business account, it’s important that all debts and outstanding costs are cleared and any money owed to staff, directors, stakeholders and suppliers is fully paid up.

This will stop you from triggering any transactions that prevent your dormant status.

To change the status of your company from active to dormant, you need to contact your local Corporation Tax Office in writing or over the phone stating the date your company became (or will become) dormant.

HMRC will then send you a ‘Notice to deliver a Company Tax Return’ for the period of business before your company became dormant. You’ll need to complete and file this and settle any tax owed.

Confirmation of your dormant status usually takes around three weeks.

If your company is registered for VAT and you have no plans to trade again, you must deregister within 30 days of becoming dormant.

Again, if you do plan to trade again, you can submit ‘nil’ VAT returns to keep your VAT status active. This will be easier than re-registering when your company becomes active.

Because you’re still required to submit confirmation statements and accounts, there is no need to notify Companies House of your intention to make your company dormant.

Top Tip: Corporation Tax and VAT are just two of the taxes small business owners need to be aware of. You can find out more about the taxes that apply to your business in our simple guide to small business tax 🙌

How to make your dormant company active

If you decide to become an active company, you must contact HMRC within three months of any kind of business activity or income.

If you’ve traded in the past, you can re-register as active for Corporation Tax via your HMRC online account.

If you’re a new business that’s going to be trading as a limited company for the first time, you need to create an HMRC online account and register for Corporation Tax using your Unique Taxpayer Reference. To do this, you have to create a Government Gateway ID on the gov.uk website and provide HMRC with the following details:

• Company name
• Company registration number
• Company address
• Nature of business
• Trading start date
• Accounting reference date

Once you’ve registered for Corporation Tax, you must send accounts to Companies House within nine months of your company’s year-end and pay any Corporation Tax due within nine months and one day of your company’s year-end.

You don’t need to make Companies House aware that your dormant company has become active. This will become apparent when you submit your annual return.

Top Tip: While Corporation Tax is unavoidable for active companies, there may be other areas you could make savings when submitting your tax return, particularly if you’re a small business. Check out these 8 tax breaks small businesses can take 🔍

💡 Expert insights

Insights author: Dan Hogan, Co-Founder and COO at Ember, who make it simple for everyone to launch, operate and grow a business by automating the tax and accounting, allowing business owners to do just business. Ember takes a tax-first approach to finances, meaning business owners can easily see how much tax they’re paying, automatically optimise it and send it off to HMRC in a few simple steps, without needing to hire an expensive accountant.

How can you best collaborate with clients and customers if you are planning to make your company dormant?

The best way to inform your customers that your company will be going dormant is by sending out an official notice, via letter, email or both, explaining that your company will cease operating for an unspecified amount of time. For any potential customers who may be looking into buying from you after your company goes dormant, add a memo on your website or social media accounts.

Is it still possible to claim certain expenses for a dormant company?

As your dormant company is still live but inactive in the eyes of Companies House, you can still claim expenses, but the expenses you can claim are limited. These expenses must be “wholly and exclusively” dedicated to maintaining your company, such as the accountancy fees needed to submit any necessary filings to Companies House or HMRC. Otherwise, any other expenses, such as travel, clothing or equipment cannot be claimed.

Wrapping up

Making your company dormant gives you the opportunity to keep your name in the public domain without the burden of running a business. It also gives you the reassurance that when or if you decide to start trading, you can easily pick things up under a name you’ve already established.

To ensure your company stays dormant:

• Cease trading operations and close business accounts to avoid incurring expenses and receiving income
• Pay incidental payments such as accountancy fees from your personal account
• File up-to-date accounts and confirmation statements with Companies House

As long as there are no indications that your company is trading and no significant accounting transactions on your books, you can keep your company dormant for as long as it suits your needs.

Photo by Sora Shimazaki, published on Pexels