For various reasons, you may want to take a break from contracting and put your limited company into an inactive state. Perhaps you intend to set up a limited company but keep it dormant to protect your brand or retain intellectual property. Regardless, if you want your limited company to be dormant, there are some steps you must take to ensure you remain compliant with Companies House and HMRC’s tax rules.

Initial steps to making a limited company dormant

To make an active company dormant, you’ll need to get in touch with HMRC as soon as you’ve decided to cease trading. They will issue you with a notice for a company tax return, which requires you to file the return and pay any outstanding tax on profits.

You’ll need to follow a similar process if you’re registered for VAT. Again, let HMRC know that you’re no longer trading and that you want to cancel your VAT registration. This can be done by filling out a form called VAT 7. It’s important that you cancel your VAT registration within 30 days of being inactive or you may be charged a penalty.

HMRC will then send you an official deregistration date by which you must stop charging VAT. You’ll also need to submit a final VAT return for the period up to and including the deregistration date.

Before making an active company dormant, it’s also your duty to close any existing accounts, ensuring that all bills and bank charges have been paid. And ensure you cancel all standing orders and direct debits, as well as letting suppliers know that you can no longer receive payments into the business account.  

Keeping a limited company dormant

The most important thing here is that you clearly demonstrate that you’re inactive, which means that no significant transactions should come into or leave your business account and no trades can occur, including buying and selling goods, operating a payroll, issuing dividends, renting property, earning interest from a bank or paying bank charges on transactions. If any of these things occur, your company will no longer be classed as dormant.

As soon as a dormant company spends or receives money it forfeits its dormant status and will be liable for corporation tax. If you’re starting up a limited company, then, but intend to keep it dormant, it may be easier not to open a business account at all.

Meeting tax obligations

Even once a company is in a dormant state, you’re still obliged to file accounts with Companies House annually. As the director of the company, it is your responsibility to ensure that accounts are up to date and submitted, regardless of whether there’s been no activity during that financial year. These files must include a balance sheet and any other relevant information and need to be sent no later than nine months after the end of the company’s financial year.

If your company hasn’t been trading for the duration of a financial year, you won’t be liable for any tax and you won’t need to file a tax return. Although it’s worth noting that if you’re a Director of a dormant company, you are still expected to complete a self-assessment tax return to cover your personal tax position.

Annual confirmation statement

Dormant companies are required to provide an annual confirmation statement every twelve months, which provides key company information including the name and registered address of the company, director details, shareholder details and so on.

A confirmation statement must be submitted within 14 days of the anniversary of when the company was registered. And even if there are no changes to make to your company details, you’ll still need to reconfirm them annually.

Making a dormant company active again

Making a limited company dormant is by no means permanent. If you change your mind or circumstances change and you’re ready to start trading through your company again, you can do so as soon as you’re ready. You’ll just need to make sure you inform HMRC that you’re active again, within three months.

To do this, you can sign in to your HMRC account and register the company as active. If the company hasn’t traded before, you must register online for corporation tax.

To find out more about topics related to trading through limited companies and more, please check out our Knowledge Hub. You can also get in touch with our team of experts to find out what insurances - like Professional Indemnity, Public (& Employer's) Liability, and IR35 Tax Investigation and Liabilities Insurance your limited company may need.

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