File Dormant Accounts: A Complete Guide

One of the disadvantages of running a company is the administrative burden, which includes obligations like filing corporation tax returns, preparing annual accounts, and submitting a confirmation statement. However, when a company becomes dormant, it may not need to pay corporation tax and can file 'dormant accounts' instead of annual accounts.

Although this may seem appealing, what you need to do depends on whether your company meets the criteria for being considered dormant for both corporation tax and Companies House purposes. HMRC and Companies House use the term dormant in slightly different ways. So, it’s possible for companies to be dormant for Corporation Tax but not for Companies House, and vice versa.

Dormant Companies for HMRC

For Corporation tax purposes, a company is considered dormant if it is not active, not liable for corporation tax and therefore, not within the charge to corporation tax. Some of the examples of dormant companies include:

• A new company that hasn’t started trading yet
• A company that has been actively trading but is not trading currently, or has no other income
• A flat management company, i.e. a company set up so that the residents jointly run a property, such as a block of flats.

When HMRC considers a company dormant, they send a letter to such companies to inform the status of the company, and that the company is not required to file company tax returns or pay corporation tax.

If a company believes it is dormant but has not received a notice from HMRC, it can inform HMRC of its dormant status. Once the HMRC is notified, the company will not need to pay corporation tax or file another tax return, unless it receives a further notice to submit the return from HMRC.  

Dormant Companies for Companies House

As previously mentioned, the term ‘dormant’ is defined slightly differently by the Companies House. Companies House considers a company dormant if it has no significant transactions during the financial year. Significant accounting transactions are those that must be recorded in the company’s accounting records, such as daily entries of all sums of money received and records of the company's assets and liabilities. However, certain transactions, such as the fee to the registrar upon company registration, penalties for failure to file accounts, or money paid for shares upon incorporation, are disregarded.

Companies that are dormant must still file the confirmation statement and the annual accounts with Companies House. However, instead of financial statements, dormant companies file dormant accounts. Dormant accounts do not include a profit or loss account or the directors’ report. Instead, the dormant accounts include a balance sheet and certain notes to the balance sheet.

Filing Dormant Accounts

Dormant companies can file their dormant accounts both online and on paper form, and there is no cost to do so. Dormant companies choosing to file the dormant accounts online can do so via the Companies House online service, And via the Form AA02 to file on the paper form. In addition to the ability to file ‘dormant accounts’ instead of the full financial statements, dormant companies that qualify as ‘small’ do not need to include an auditor’s report with their accounts.

Generally, a company that meets any two of the following criteria will qualify as ‘small’:

• A turnover of less than £10.2 million
• Less than £5.1 million on its balance sheet
• Less than 50 employees

Small companies enjoy certain benefits, for example small companies do not need to audit themselves.

When dormant companies restart trading, there is no obligation for them to inform Companies House of their current status. Instead, they need to file regular, non-dormant accounts which will show that the company is no longer dormant.

Dormant Companies registered for VAT

Dormant companies registered for VAT must deregister for VAT within 30 days of the company becoming dormant. However, companies that plan to restart trading must submit a nil VAT return even when the company is dormant.

Similarly, dormant companies that do not plan to restart trading should close their PAYE scheme as well.

Conclusion

In conclusion, maintaining your company's dormant status can significantly reduce administrative burdens. A dormant company is exempt from filing corporation tax returns and paying corporation tax for HMRC. For Companies House, dormancy means no significant financial transactions, allowing simplified dormant accounts. Despite this, companies must still file a confirmation statement and a balance sheet with notes, which can be done easily and for free. Adhering to these guidelines ensures compliance and eases the administrative load on your dormant company.