What You Need to Know About Dormant Companies House Accounts & HMRC Dormant Tax Filing
A dormant company in the UK is one that doesn’t trade or carry out any business activities. This status is helpful for individuals or businesses that want to keep their company name without running a business.
However, it’s important to understand the filing requirements with Companies House and HMRC to avoid penalties.
What Is a Dormant Company?
A company is considered dormant by Companies House if it hasn’t had any significant financial transactions during its financial year, except for things like filing fees or late penalties. Being dormant helps businesses maintain their company structure without the costs of running operations. However, even dormant companies still have certain legal obligations to fulfill.
To stay dormant, a company must avoid significant transactions, including payments for shares or filing fees. Any activity could result in the company losing its dormant status and needing to file full statutory accounts.
Key Requirements for Dormant Companies
Annual Accounts: Dormant companies must file simplified annual accounts with Companies House each year using form AA02. This typically includes a balance sheet and a statement confirming the company’s dormant status. These accounts must be filed within nine months of the financial year ending. For new companies, the first set of accounts must be filed 21 months after incorporation.
Annual Confirmation Statement: Every limited company, including dormant ones, must file an annual confirmation statement with Companies House. This ensures that details like directors, shareholders, and addresses are up to date. This must be done at least once a year.
Filing with HMRC
HMRC defines a company as dormant for tax purposes when it is not actively trading and generates no income, including bank interest or other financial gains. It is crucial to understand that the criteria for dormancy differ between HMRC and Companies House. Therefore, it is very important to understand that dormant status at Companies House does not guarantee dormant status with HMRC.
Corporation Tax:
No Corporation Tax Liability: A company that maintains genuine dormancy throughout the entire accounting period will not incur a Corporation Tax liability.
Income Reporting: Any income received, even minor amounts such as bank interest, disqualifies a company from dormant status for Corporation Tax purposes. All income must be reported to HMRC.
Filing Requirement: If the company engaged in any trading activity during the accounting period, regardless of duration, a Corporation Tax Return (CT600) is mandatory.
Review Guidance: It is strongly recommended to consult the most current HMRC guidance on Corporation Tax for dormant companies, as regulations are subject to change.
HMRC Notification:
Direct Notification: While Companies House filings provide information to HMRC, they do not constitute direct notification of a company's dormant status for Corporation Tax purposes. Direct communication with HMRC regarding any change in trading status is prudent, particularly for companies with a prior trading history.
Consult Latest Guidance: Always refer to the latest HMRC guidance to ensure adherence to correct notification procedures.
Record-Keeping:
It is essential to maintain meticulous records of all financial transactions, regardless of size. These records may be required for accurate tax return preparation and to demonstrate compliance with HMRC regulations.
Common Misconceptions
Some directors think that because HMRC doesn’t require accounts from dormant companies, Companies House doesn’t either. This isn’t true, companies must comply with both entities, even if dormant. If a dormant company starts trading again, no immediate notice is needed to Companies House or HMRC, but accurate records of all transactions must be kept from the date of return to trading, and the future accounts will reflect this change.
Note: If you fail to file your dormant company accounts or confirmation statement on time, it could face penalties. In extreme cases, Companies House may strike off the company, meaning it will no longer legally exist. It’s important for directors to keep track of filing deadlines.
Conclusion
Being aware of dormant company rules helps businesses stay compliant with UK law. By filing annual accounts, submitting confirmation statements, and notifying HMRC of dormancy, directors can avoid penalties. Dormant companies offer flexibility for future ventures without ongoing trading costs.
If you're unsure about your dormant company's tax obligations, Taxd can help you ensure you're fully compliant. Contact us today for expert assistance.
FAQs
1. What defines a dormant company?
A dormant company has no significant financial transactions during the financial year, except for things like filing fees or penalties.
2. Do dormant companies need to file annual accounts?
Yes, they do. Dormant companies must submit simplified annual accounts, using form AA02, which includes a balance sheet and a director's statement. These must be filed within nine months of the financial year-end.
3. Do dormant companies have tax obligations?
Generally no, provided that HMRC is correctly notified of the company’s dormant status, and the company has no income. However, if the company was active during part of the financial year, or receives income such as bank interest, it must file a tax return for that period.
4. What happens if a dormant company resumes trading?
A company can resume trading, but accurate records must be kept from the date of return to trading, and it must file full statutory accounts and tax returns to reflect its active status when it files for the next period.
5. What are the penalties for not filing on time?
Failure to file can result in late fees and possibly being struck off the Companies House register, which means losing your company’s legal status and name.
