If you have a UK limited company that is not trading, you need to understand what dormant means in practice. Getting it wrong can lead to unexpected tax bills, companies house penalties, or even having your company struck off. This guide breaks down the dormant company definition for both HMRC and Companies House, explains your ongoing obligations, and helps you avoid the most common mistakes directors make.
Key Takeaways
A company is dormant when it has no significant accounting transactions or income. HMRC and Companies House use slightly different definitions, and you need to satisfy both.
Once HMRC accepts your company as dormant for corporation tax, you usually do not need to pay corporation tax or file a company tax return. However, you must still file dormant accounts and a confirmation statement with Companies House every year.
Certain payments do not break dormancy, such as filing fees paid to Companies House for a confirmation statement, company name changes, or civil penalties for late filing of accounts. But bank interest, rent, wages, or supplier invoices normally do.
A company can be considered dormant from the day it is incorporated (for example, to protect a company name) or it can become dormant after a period of trading.
The company director remains legally responsible for meeting all deadlines for the company's annual filings, even when the company is dormant. Missing these can result in late filing penalties or strike-off.
What Is a Dormant Company?
In plain English, a dormant company is a UK limited company that is not trading and has no income or significant accounting transactions recorded in its company accounts. It is a registered legal entity that is officially inactive. A dormant company has no significant accounting transactions during the relevant accounting period.
Dormant is not a separate type of legal entity. It is simply a status applied to an existing limited company. The company retains its legal existence and rights to resume trading at any point in the future.
A company is dormant if it carries out no business activity, earns no trading income for example investments or otherwise, and does not incur day-to-day expenses such as rent, wages, or bank charges. Companies may remain dormant until ready to trade again.
A company can be dormant immediately from incorporation, which is common when directors want to protect a specific company name for future use. Alternatively, an active company can become dormant after it stops trading.
There are two main definitions you need to be aware of: one for corporation tax (used by HMRC) and one for Companies House. They overlap, but differ in ways that affect your company tax and accounts obligations. Getting one right but not the other can cause problems.
Dormant Company Definition for Corporation Tax
HMRC treats a company as dormant for corporation tax when it has stopped trading and has no other income. HMRC defines dormancy based on corporation tax liability and active income. A newly incorporated company that has never started trading is also classed as dormant.
The following activities mean your company is not dormant for corporation tax purposes:
Buying or selling goods or services
Charging fees to customers
Earning bank interest or other income for example investments
Paying employees or directors
Renting out property
Managing investments that produce returns
Dormant companies do not pay corporation tax or file returns once HMRC has accepted the dormant status. HMRC will not expect corporation tax payments or regular company tax return submissions for that period, unless it issues a specific notice to deliver a company tax return. If you receive such a notice, you must respond, even if you believe the company is dormant. You cannot simply ignore it until further notice.
A dormant company must inform HMRC to avoid being treated as active for tax purposes. If the company has previously filed a company tax return, it must still submit a return covering the final period of activity before dormancy takes effect.
Directors should keep simple accounting records showing when trading ceased. You can confirm your company is dormant for corporation tax using the online service or by post. Once you have told HMRC, they will usually stop sending return requests.
Dormant Company Definition for Companies House
Companies House defines a dormant company as having no significant transactions during the accounting period. This definition comes from section 1169 of the Companies Act 2006, which sets out what counts as a significant accounting transaction: any such transaction that must be entered in the company's accounting records under section 386.
Companies House defines dormant companies with SIC code 99999, which is the standard classification for a company that has never traded or is otherwise inactive.
There are three key types of transactions that do not break dormancy:
Payment for initial subscriber shares on incorporation
Filing fees paid to Companies House for a confirmation statement, changing the company name, or re-registration
Civil penalties imposed by Companies House for late filing of accounts
Everything else, including paying suppliers, salaries, rent, bank charges, or receiving any income, counts as a significant accounting transaction and breaks the dormant status.
Companies House allows dormant companies to file simplified dormant accounts. These typically include only a balance sheet and minimal notes, with no profit and loss account or detailed directors report required. A dormant company must submit simplified filings if it qualifies as small.
It is worth noting that dormancy for Companies House does not automatically mean dormancy for corporation tax. Directors must consider both regimes separately.
Allowable and Non-Allowable Transactions While a Company Is Dormant
Maintaining dormant status requires strict control over transactions. Only specific transactions can occur without losing dormant status, and even small, unintentional activity can trigger a change.
Allowable transactions (do not break dormancy for Companies House):
Transaction | Breaks Dormancy? |
|---|---|
Payment for subscriber shares at incorporation | No |
Companies House confirmation statement fees | No |
Company name change fees | No |
Civil penalty for late filing | No |
Non-allowable transactions (company is no longer dormant):
Transaction | Breaks Dormancy? |
|---|---|
Receiving customer payments or other income | Yes |
Paying suppliers or contractors | Yes |
Bank charges or bank interest | Yes |
Paying wages or salaries | Yes |
Paying rent or utilities | Yes |
Issuing or paying dividends | Yes |
Dormant companies must avoid generating any accounting transactions beyond those specifically excluded. Significant transactions include payment of registration fees or penalties only within the narrow categories above.
In practice, many truly dormant companies either close their business bank account or keep the balance at zero to prevent accidental transactions such as bank charges or interest. A single small bank charge can mean the company is longer dormant for that accounting period.
Once a non-allowable transaction occurs, the company will usually need to file non dormant accounts and may face corporation tax or file obligations for that period.
Why Keep a Company Dormant?
Dormant companies are often used for strategic reasons rather than day-to-day trading. Here are the most common scenarios:
Protecting a company name: Dormant companies can protect a specific company name by registering it now and leaving the company inactive until you are ready to trade. This is common when brand names are competitive or a sole trader plans to switch to limited company trading later.
Pausing an existing business: A trading company can be made dormant during a long break, such as a director taking a career break or dealing with personal circumstances. The company retains legal existence and rights to resume trading when conditions improve.
Holding assets or intellectual property: Companies can hold assets or intellectual property as dormant, including trademarks, patents, or copyrights. A dormant company can hold assets without being considered actively trading, as long as those assets do not produce income or require significant transactions.
Future flexibility: Dormant companies are often used to protect a business name or hold assets while the director decides on next steps. Keeping the company dormant avoids the cost and disruption of dissolving and re-incorporating later.
Filing Dormant Company Accounts and Other Requirements
Dormant status reduces statutory filing burdens significantly, but it does not remove them entirely. Directors must still deal with company accounts and other filings on time.
A dormant company must file annual accounts with Companies House every financial year. These are usually filed as dormant accounts with a simple balance sheet and notes confirming the company was dormant throughout the period. You can file dormant accounts online using the companies house online service, which offers a simple online template with inbuilt checks for quick electronic submission.
A dormant company typically does not need to include a detailed profit and loss account, a full directors report, or an auditor's report if it qualifies for audit exemption under section 480 of the Companies Act 2006. New companies that have never traded and have only the original subscriber share transaction can use the simplest dormant accounts format.
Dormant companies can benefit from reduced compliance burdens, but the requirement to deliver annual accounts remains. Directors must still file annual accounts with Companies House on time. The risk of late filing is real: accounts money paid in civil penalty fees for late filing of accounts can escalate, and in serious cases a dormant company fails to file could face possible strike-off. Late filing penalties apply equally to dormant companies as to active ones.
A company that includes dormant companies on the register is still expected to meet its filing deadlines, regardless of trading activity.
Other Ongoing Duties for Dormant Companies
Even when a company is dormant, various legal responsibilities remain in place for the company director and officers.
Confirmation statement: Dormant companies must file an annual confirmation statement at least once every 12 months to confirm key information such as directors, registered office address, shareholdings, and persons with significant control (PSC). Companies House requires a confirmation statement from dormant companies, and the filing fees for this apply.
Reporting changes: Any changes in company officers, registered office, or PSC details must still be reported to Companies House promptly, even if the company is not trading. Companies House confirmation statements must reflect accurate, up-to-date information.
VAT deregistration: If the company is registered for VAT but will be dormant long-term, the director should usually deregister to avoid filing ongoing nil VAT returns.
PAYE closure: If the company previously employed people, the PAYE scheme may need to be closed to avoid unnecessary payroll reporting obligations.
Record-keeping duties also continue. Even with no significant transactions, you should retain accounting records showing that no activity took place during the period.
The Role and Responsibilities of the Company Director
Dormancy does not remove the legal responsibilities of a company director. You remain personally responsible for ensuring that dormant accounts, confirmation statements, and any required tax returns are properly prepared and filed accurately and on time.
Failing to meet these obligations can lead to serious consequences:
Financial penalties from Companies House
Companies house penalties for late filing
Personal prosecution in cases of serious breach
The company being struck off the register
It is of vital importance that directors monitor statutory filing deadlines carefully, even if an accountant or formation agent is helping with the company's annual filings. A simple compliance calendar noting key dates for accounts with Companies House, confirmation statement due dates, and any communication with HMRC about company tax status can keep you on track.
As a director, you are also responsible for monitoring trigger events. If any transaction or income arises that could make the company longer dormant, you must act promptly, updating your accounting records and, if necessary, restarting full statutory filings. This is something that should always be on directors minds.
For further guidance, keep in mind that HMRC may send a notice to deliver annual accounts or a company tax return even to a dormant company. If this happens, respond immediately rather than assuming it is an error.
FAQ: Dormant Company Definition and Obligations
How long can my company stay dormant?
There is no fixed time limit in UK law for how long a company can remain dormant. It can stay dormant indefinitely, provided it has no disqualifying significant transactions and all filings, including dormant accounts and companies house confirmation statements, are kept up to date. Companies House will only usually take action, such as striking off the company, if accounts or the confirmation statement are not filed on time. This was originally published in Companies House guidance and remains current.
Do I need a business bank account for a dormant company?
A business bank account is not legally required if the company is completely dormant and has no financial activity. In fact, having a bank account can risk accidental transactions, such as bank charges or interest, which could cause the company to lose its dormant status. Many directors of dormant companies choose to close their account or keep it at zero balance to avoid this risk.
Can a dormant company own assets or intellectual property?
Yes. A dormant company can own assets, including intellectual property such as trademarks or copyrights, without necessarily losing its dormant status. What matters is whether the company is generating income or recording significant accounting transactions, not simply holding the legal title to an asset. If the asset starts producing income, such as royalties or licensing fees, the company would no longer be considered dormant.
What happens when a dormant company starts trading again?
Once a dormant company begins to restart trading, for example by issuing invoices, paying suppliers, or hiring staff, it is no longer dormant and must be treated as active. A dormant company can easily be reactivated by notifying tax authorities. The director should notify HMRC within three months that the company is active for corporation tax, review whether VAT registration is needed, and prepare to file full company accounts, including a profit and loss account and a loss account where relevant, reflecting the new trading activity at the next accounting date. This is a process that the security service at uk performing security verification and security verification steps on the companies house online service handle smoothly, and verification successful confirmation is typically provided. The respond ray id confirms your submission. Be aware that the system also protects against malicious bots during this process.
Is a non-trading company the same as a dormant company?
A non-trading company is not necessarily dormant. It may not be actively trading but could still have financial activity such as rent, salaries, or bank charges. A non-trading company may have ongoing financial transactions that require accounts to be filed. Non-trading companies use SIC code 74990 for classification, while dormant companies use SIC code 99999.
A truly dormant company has no significant accounting transactions at all, while a non-trading company may still need full company accounts and may have corporation tax obligations. Companies limited by shares or guarantee both follow these same rules. If your company has any other income or expenses, you will likely need to file non dormant accounts and should not assume you are exempt. The distinction matters because it affects whether you must still file annual accounts in full, require accounts with a detailed auditor's report, or can use simplified dormant filings.
Dormancy is a practical tool for UK directors, but only if you stay on top of your obligations. Set up a simple compliance calendar, keep your accounting records clean, and never assume that a dormant company has zero responsibilities. If you are unsure whether your company qualifies as dormant, speak to an accountant before making assumptions that could cost you in penalties or lost status.
