Whether you need a break for a while, you’ve got a permanent job offer that you can’t refuse or want to retire, in such cases you may decide to make your company dormant. Whatever your reasons, you can stop running your business for some time by making it dormant. But many of you might not know how to make your company dormant, so here, we’re going to explore how to make a company dormant?
Before delving deep into the details, let’s talk about:
- What is a Dormant Company?
- When can you make your company dormant?
- How to make a company dormant?
- Responsibilities involved with dormancy
- Advantages of dormancy
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What is a Dormant Company?
A dormant company is an inactive company that has no accounting transactions in a financial year and does not have any alternative income form. You can make your company dormant right after incorporation or trading for some time. This company could not be involved in any business activities or make any income. Bear in mind that a dormant company needs to be registered with the Companies House and its dormancy status needs to be notified to HMRC.
When it starts trading again or generates any income, your business will no longer be dormant.
When Can you Make your Company Dormant?
As per the HMRC’s guidelines, to register your company dormant, you must fall under one of the following criteria:
- Your company has not started its business activities
- A company used to trade but is not currently trading
- A company that wants to be removed from the Companies Register
- It is an off-the-shelf or shell company to be sold
- A company that will never be trading as it was formed to own an assets
If you want to keep your company’s dormancy status, it will be considered active for corporation tax purposes if it meets one of the following conditions:
- Involved in a business activity like trade or professional service
- Buying and selling goods to earn profit
- Earning interest
- Offering services
- Managing investment
- Receiving income from any other source
- Is not a flat management company
- Is not an unincorporated association or club owing less than £100 Corporation Tax
There’s more detail on the government website.
How to Make a Company Dormant?
If you want to make your company dormant, you need to first register for dormancy status with HMRC. If it was doing trading before, HMRC will let you know whether you need to complete a corporation tax return for the past period. You need to send HMRC online before your company is considered dormant. In addition, you also need to close your payroll and pay any outstanding bills.
What are your Responsibilities if your Limited Company is Dormant?
Even when you are dormant, there are few responsibilities that limited the company director needs to fulfil. Directors are required to file the following documents to Companies House:
- You need to file an annual confirmation statement to let provide a snapshot to Companies House about the company’s officers and address details
- Annual accounts at the end of a financial year to prove that the company has not been trading for a year
Advantages and Disadvantages of Making a Company Dormant
Here is the rundown of the benefits of making a company dormant:
- You can take a break from running the company, if you become ill, or need to move somewhere on a temporary basis
- Lower administrative cost
- Time to prepare a restructuring plan
- No limit to keeping your comapny dormant
- Cost-effective than closing down a company
Here are some of the downsides of it:
- You need to fulfil some administrative obligations even when your company is dormant
- Need to file dormant accounts and Confirmation Statements to Companies House on an annual basis
Quick Sum Up
That’s all about how to make a company dormant. To do it, you just need to register it as a dormant company with HMRC and need to inform clients and agents that you are no longer trading. If you want to restart trading, inform HMRC within the first three months. You also need to send your annual accounts to Companies House along with corporation tax within nine months of your company’s year-end and send company tax returns to HMRC within 12 months of the end of the company’s year.
Turn to CruseBurke for preparing and submitting the return and save your time, money, and stress. We have a team of skilled accountants who will handle everything with HMRC and Companies House on your behalf. Contact us right away!
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Disclaimer: This blog is written for general information on the topic.