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Making a limited company dormant – What to look out for

Confused worried manMany contractors choose to close their limited companies completely when they have no intention of returning to contracting. But for those who are just considering a short break away from their limited company, making it dormant may be the better option. This will allow you to reserve your company name, brand and trademark until you return to your operations. However, making your limited company dormant does require you to meet certain filing requirements throughout the year.

In the following article, we look at what makes a company dormant and what steps you need to take to make your limited company dormant.

What is a dormant company?

When a company is dormant, it means it has stopped trading and is therefore inactive for Corporation Tax purposes. Under the term trading, HMRC means buying and selling, renting property, advertising, employing someone or earning interest. Transactions must be limited solely to the payment of shares and any outstanding fees to the Companies House.

When your company is dormant, you are not required to file tax returns. However, you are still required to maintain certain administration on an ongoing basis. This includes submitting a confirmation statement to the Companies House and submitting forms if there is a change to the company’s registered address or if there is a change in company’s directors.

For detailed guidance on requirements, visit the government’s website.

What actions do I need to take to make my active company dormant?

Once you’ve decided to make your limited company dormant, the process is fairly straightforward. To make an active company dormant, you should:

  • Inform HMRC that your company is dormant in writing or by phone. This must be within three months of your company becoming dormant.
  • Make sure your clients pay any outstanding invoices before you cease trading.
  • Close your business bank accounts. Any transactions will otherwise void your company’s dormant status.
  • Terminate your contracts with service providers and settle any outstanding bills.
  • A dormant company cannot have employees. Pay any remaining wages if your company had employees and follow HMRC protocols to close your payroll.
  • Deregister for VAT.
  • Prepare your final trading accounts for your accounting year-end and file your final tax return.

Need assistance?

Talk to us at Tax Agility to speak with a professional to discuss the prospect of making an active company dormant if you’re not quite sure what you need to do. As small business accountants and accountants for contractors, we’ve seen all the scenarios and have the answers you’re looking for. If you decide to restart trading under your dormant company, we can also help.

Contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.