Setting up a dormant company comes with its perks. However, many entrepreneurs and businesses looking to register one such company in the UK do not know how to get the process started. Indeed, suppose you know how to register a limited liability company in the UK. In that case, it might interest you to know that the process for setting up a dormant company is the same, aside from some slight variations.
Though you can find dormant accounts advisors in the UK, it’s equally helpful to understand minor details such as what makes a company in the UK dormant, the information required, and why you might want to register a dormant company.
So continue reading to learn all these and more.
What is a Dormant Company
The term “dormant company” is used to describe a limited company that has been set up with a Companies House, but due to any reason, it hasn’t begun trading or will never trade. Such companies have no significant transactions on their accounts in their financial year. For Corporation Tax, dormant companies are considered inactive. This is because they don’t partake in any trading activities such as:
-Maintaining a payroll
-Buying and selling products and services
-Earning income and interest
-Purchasing or renting properties
-Paying bank fees and charges
-Paying salaries for high officials like directors
-Paying accountancy fees and formation cost for the company using a business account.
The moment a dormant account performs any of these transactions, it ceases to be dormant. Its dormant trading status will move into the category for ‘active’ for Corporate Tax.
Nevertheless, certain transactions are considered ‘significant accounting transactions’ that a dormant company can perform. These are:
-Payment of subscriber shares (the first company shareholders during incorporation).
-Payment of fees during annual Confirmation Statements to Company House.
-Penalties paid to Companies House for Late filing.
Why Register a Dormant Company
Given all the information available on dormant companies and their requirements, the question might have crossed your mind. Why would anyone have a limited company remain dormant? Though it’s a simple question, the answer isn’t so straightforward because there are several reasons why a company may choose to stay dormant. Some of these reasons include the following:
-Keeping a trademark or brand name protected
-Reserving a corporate name for use later
-For holding intellectual property or assets
-To allow an existing business to restructure
-A temporary step in case of illness or death of a business owner
A dormant company can maintain its status for any duration of time. However, all limited companies incur some expenses for being in the official register, dormant companies included. Also, there are specific obligatory ways of reporting and filing with the Companies House and HMRC.
Now that you know the basic information of a dormant company, here are five steps to set up in the UK.
1. Information You’ll Need
To register a dormant company, you’ll get all the necessary information starting with a unique name for your company and a registered office address.
Next, the company will require a minimum of one director, and all directors will have to provide personal demographics and other information including name, nationality, and even eye color. Every shareholder will require the following information:
-Number of shares owned
-Value of each share
Finally, the people in the company with significant control will also provide details including name, nationality, and other details.
Once you have all this information, you’ll perform a company name search before registering your company name, provided it’s not taken. But it doesn’t end there, because you’ll need to follow certain formalities to keep your company dormant.
2. Don’t Trade
Apart from ensuring that your company’s accounts remain dormant by avoiding any of the transactions earlier mentioned, you also need to check with Companies House to ensure you don’t have any ‘significant transactions’ during the accounting period of your company.
The moment any transaction of accounting significance occurs, you’ll need to record it in the account of your company. And by doing so, your dormant account will be considered trading. Which is something you’ll want to avoid.
3. Get HMRC Informed
Apart from not trading, you’ll need to inform the HM Revenue and Custom (HMRC) by corresponding with them. In case you are wondering, the HMRC is primarily the UK’s tax payment and customs authority. The aim is to update them on your company’s status, letting them know that your company is a dormant one.
4. Prepare Your Confirmation Statement
Even though your new registered company is dormant and not actively trading, the authorities in the UK still have specific requirements you’ll need to fulfill. One such requirement is the filing of the annual confirmation statement for your company. But why is this important?
The annual filing of this statement ensures that Companies House is always updated with any changes that occur with your dormant company. And if nothing changes, they’ll also be in the know. You can do this either at the end of each period or as required as changes occur within the company.
5. Annual Filing For Your Dormant Accounts
Finally, the law also requires you to file the accounts of your dormant company. You have to first do this no more than 21 months after the company registration. After this, you’ll have to file your dormant accounts every year. And that’s all you need to do to set up a dormant company in the UK and keep it dormant.
For those operating a previously active company but currently dormant, it’s necessary to contact the Corporation Tax department, either by email, post, or phone immediately. They’ll send a ‘Notice to deliver a Company Tax Return’ to your registered office address.
Then you’ll have to put together a Company Tax Return and accounts for the HMRC and make Corporation Tax payments for any profits you earned prior to the dormancy of your company. After these, your previously trading company becomes dormant. However, if you’re looking to open a dormant limited company for any reason, the steps outlined above should help you navigate the procedures easily.