Dormant Companies: Beneficial Features and Uses
If you ever put your limited company on hold without completely shutting it down, you should know about the dormant company.
A dormant company is mainly not trading but is registered with the company’s house. That is a very smart move for UK individuals who want to keep their company running in future.
- What Defines a Dormant Company?
- Why Should You Make a Company Dormant?
- Hold Company Without Closing
- Advantages of Keeping a Company Dormant
- Drawbacks of Keeping a Company Dormant
- Can you Claim Expenses While Staying Dormant?
- How Can You Make Your Company Dormant?
- Are you Ready to Hibernate Your Company?
What Defines a Dormant Company?
A dormant company is not involved in doing any business activity or earning any income. However, it’s not inactive but on hold. But you won’t be issuing invoices or making any business sales. No matter if the company is on hold, you must meet ongoing responsibilities. This involves submitting nil returns to HMRC and filing annual accounts with Companies House.
You can keep your bank account open and receive any payment from old invoices issued before becoming dormant. However, there will be no new trading activity.
Why Should You Make a Company Dormant?
Instead of closing it completely, you should make your company dormant for various reasons.
It Preserves Your Company Name
Registering your company means no one can use your business name whether you are trading or not.
Hold Company Without Closing
Suppose you are worried about your company’s future but are not in a position to start your business. In that case, dormancy is the best option, allowing you to hibernate your business until it’s ready to return.
Simplified Operations
Though some administrative tasks exist, dormant companies could face fewer obligations than active ones. However, you won’t need to pay corporation tax or file full accounts, only basic simplified returns.
Advantages of Keeping a Company Dormant
Adaptability
Dormancy allows a business person to resume trading whenever the conditions are fine. This can also be useful if you plan to restart your business operations after a specific time.
Cost Friendly
Maintaining a dormant company is usually cheaper than continuing its business operations. This way, you can reduce costs while the company remains active and stays ready for future use.
Avoid the Hassle of Starting Over
If you have closed your company and want to continue, you must create a new limited company from scratch. Here comes the benefit of dormancy that will save you from repeating the process.
Drawbacks of Keeping a Company Dormant
Ongoing Responsibilities
Even though a dormant company isn’t trading, you still face legal obligations. These include filing annual accounts, submitting a confirmation statement, and keeping HMRC informed about zero returns.
Failing to meet these could result in penalties from HMRC.
Limited Expense Claims
Since dormant companies are not trading, you can claim limited expenses like bank charges and accountancy fees. Any ongoing cost can be paid personally or treated as a director’s withdrawal; this can also complicate your tax situation.
You Can’t Pay a Salary
You won’t be able to pay a salary to yourself from a dormant company. However, if you still rely on the company’s income, you must consider alternative ways to support yourself.
Key Duties of a Dormant Company
Dormant companies don’t have a lot of duties; however, they have a few key responsibilities.
Annual Accounts and Confirmation Statement
For a dormant company, you’ll still need to file annual accounts with the company’s house and submit a confirmation statement. This can help you keep your company details up to date.
Tax Returns
Dormant companies don’t pay corporation tax; you must inform HMRC by filing the tax return with zero income and expenses.
Payroll Considerations (If Mandatory)
If your company has employees or pays directors’ salaries, you must set up a £0 payroll to keep HMRC updated and avoid penalties.
VAT( Value Added Tax)
If your company is VAT-registered, you must continue filing quarterly VAT returns, even if they are nill. On the other hand, you can de-register for VAT by saying dormant.
Can you Claim Expenses While Staying Dormant?
As your company isn’t trading, you have to claim only limited expenses
- Bank Charges
- Accountancy Fee
- Legal Fee
It is mandatory to cancel non-essential expenses, or you should pay them personally.
How Can You Make Your Company Dormant?
If you want to make your company dormant, first, you have to
- Inform HMRC and the company’s house that your company is currently dormant.
- Make sure all the invoices are settled.
- File any final corporation tax return for your trading period.
- Manually submit confirmation statements and dormant company accounts annually.
Are you Ready to Hibernate Your Company?
Deciding to dormant the company is the best option to hit or pause without losing anything. It keeps your options open, whether you’re planning a temporary career change or waiting for a better trading condition.
However, there are mandatory responsibilities that you need to fulfil no matter what paperwork you do. However, you must comply with HMRC and companies house when managing the dormant company. When the right time comes, waking your company back can be as easy as pie.