What is a Dormant Company?

Company Annual Returns and Annual AccountsFigures from Companies House show that about 18.5% of companies in Great Britain do not do any business all year. These are classed as Dormant Companies. A dormant company is defined as having no ‘significant accounting transactions’ during a financial year.

Even though a company may have done no business during the year it still needs to submit accounts to Companies House. Doing nothing can lead to your company being automatically dissolved, fines and potential prosecutions. If a company is doing no business then an alternative to dissolving it is to declare it dormant. Dormant companies still need to file annual accounts but these can be much simpler than for a trading company as they just need to contain a profit and loss sheet and a copy of the previous year’s accounts for comparison. Importantly there is no need for a dormant company to have their accounts audited. This makes it a lot cheaper to prepare the accounts than for a company that actually has some cash flow.

There are a number of reasons why people may want to operate a dormant company. Many people set up their limited company when they first get the idea for their business. For a variety of reasons it often takes people a while to actually get the business off the ground and trading. Similarly some people might have an idea for a future project and want to get their company registered so that everything is ready to go once the project comes together.  Likewise people will sometimes register a company name in order to stop anyone else from getting it or to protect themselves from copycat companies. The small costs and amount of paperwork involved can be a lot more convenient than a potential court case. In many cases dormant companies are used to hold a piece of intellectual or physical property. If no changes are made to this property then the company will not be trading and it can be maintained in a dormant status.

Whatever the reason for having a dormant company it is important to keep make sure the process is done properly. A declaration has to be sent to Companies House citing sections 480 and 476 of the Companies Act to declare exemption from auditing. As well as this an AA02 form has to be submitted. If you are thinking of making your company dormant and need any help with the process get in touch with us.

One comment on “What is a Dormant Company?

  • Hi Jose,
    The HMRC will automatically write to you around 3 to 4 weeks after your company has been formed and will ask you to fill in a form known as a CT41G. You can use this form to tell them that your company will be dormant, or to tell them what your expected start date is. If you tell them you are dormant you just need to let them know once you start trading.

    As far as signing contracts go it shouldn’t make a big difference. At the end of your first year you will need to file accounts with Companies House to show whether the company is dormant or to show how much money you have made if trading. Anyone can check these accounts and it is common for businesses to look at them before signing big contracts.

    However during the first year, before the accounts have to be filed, all anyone will see is that your company is registered and active.

    I hope that helps. If you have any questions give us a call on 01245 492777.

    Thanks

    Peter

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