Our tax preparation specialists explain what you need to do if your company or association ceases to trade

At DSR Tax Claims Ltd, we know that working out your company’s finances is hard work, and that’s before you have to deal with your taxes. That’s why our experts want to help make life as easy as possible for you by sharing our specialist knowledge with you. So, whether you are wanting more information about VAT or need to know about charitable tax relief, our handy guides are here to help. All our information is based on HMRC sources, so you can rest assured that these guides are filled with helpful and accurate information.

What does it mean when your company or association becomes dormant?

If you run a company or association that is no longer doing business and doesn’t have any other income, it may be classed as ‘dormant’.

The term ‘dormant’ has different meanings depending on how it is applied. If it is classed as dormant for Corporation Tax and Company Tax Returns, it doesn’t mean it is automatically assumed to be dormant for Companies House, so you may still be required to file annual accounts if you have a limited company.

What does dormant for Corporation Tax mean?

HMRC will consider your company to be dormant if any of the following apply:

  • It has stopped trading and has no other form of income, for example, investment or rental income.
  • It is an unincorporated association or club and it owes less than £100 in Corporation Tax. Your club or association must be run exclusively for the benefit of its members.
  • It is a new limited company which hasn’t started trading yet. Once you start to trade, you will need to inform HMRC and register for Corporation Tax.
  • It is a flat management company – this is a private limited company set up to allow a group of residents to jointly run a property, such as a block of flats.

By trading, HMRC means carrying on any activity which might form the basis of your business. This means that it doesn’t just include buying and selling, but also includes advertising, employing someone, renting property or getting interest.

How do you notify HMRC that your company is dormant?

HMRC might already recognise that your company is dormant and write to inform you that they are treating your association or company as dormant. This will mean that you don’t need to pay any Corporation Tax or file a Company Tax Return.

However, if HMRC don’t notify you, you can inform HMRC that your company is dormant for Corporation Tax. How you do this will depend on whether you have ever had a ‘notice to deliver a Company Tax Return’:

  • If you have never received a ‘notice to deliver’, you can inform HMRC of your company’s dormant status by post or by calling the Corporation Tax helpline on 0300 200 3410. You will need your Corporation Tax UTR (unique taxpayer reference) before you call.
  • If you have previously filed a Company Tax Return or have received a ‘notice to deliver’, you will still be required to file a Company Tax Return online, which will show HMRC that your company is, in fact, dormant. HMRC won’t send you any further requests to send a Company Tax Return once they have marked your company as dormant. 

Limited companies won’t have to pay Corporation Tax or file any further Company Tax Returns once you have informed HMRC that your company is dormant, but you will still be expected to file annual accounts with Companies House unless you are dormant with Companies House also.

What about VAT?

Once your company becomes dormant, you must deregister for VAT within 30 days. However, if you plan to restart your company at a later date, you need to send ‘nil’ or empty VAT returns each VAT period until you restart trading.

What if you are an employer?

If you are an employer but you don’t plan to restart trading in this tax year, you need to close your PAYE scheme including submitting a Final Payment Submission (FPS) or Employer Payment Summary (EPS). You will also need to send in your expenses and benefits returns, enter a leaving date on each of your employee’s payroll records and provide them with a P45 on their final day.

How do you make your company dormant for Companies House?

To do this, you need to file your confirmation statement and annual accounts with Companies House. The confirmation statement was previously known as an annual return and provides information about your company, including details of your registered office and your statement of capital, to Companies House. You still need to do this even if your company is dormant for Corporation Tax.

Your company will be considered dormant by Companies House if it has had no ‘significant’ transactions in the financial year. Significant transactions don’t include the filing fees paid to Companies House when you send your confirmation statement, late filing penalties or money which was paid for shares when the company was incorporated.

If your company is dormant and also qualifies as ‘small’ to Companies House, instead of filing annual accounts you can file ‘dormant accounts’ instead and you don’t need to include an auditor’s report with your accounts.

A company is classed as ‘small’ if any 2 of the following apply:

  • It has 50 employees or less;
  • It has a turnover of £10.2 million or less
  • It has £5.1 million or less on its balance sheet.

What happens if you restart trading?

If your company restarts trading after becoming dormant, you don’t need to tell Companies House. Your next set of accounts will show that the company is no longer trading and so isn’t dormant anymore.

How can DSR Tax Claims Ltd help?

We know that setting up a business can be hard work – there’s so much to think about and that’s before you start thinking about taxes and Companies House. Our friendly team of tax specialists at DSR Tax Claims Ltd are on hand to help make life easier for you. We’re the experts at identifying your maximum allowable expenses so call us on 0330 122 9972 – we’re the tax experts you can trust.