A dormant company usually refers to an inactive or inoperative company.
A dormant business is a great way to form a corporation for a future project or hold an asset/intellectual property without significant accounting activities.
It’s also important to note that a firm that has not submitted its annual reports for two years in a row is said to be a dormant corporation.
Companies House classifies as dormant if there are no significant transactions during the fiscal year. Notable transactions include filing fees paid to Companies House, penalties for late filing of accounts, and money paid for shares when the company was formed.
But aside from understanding what a dormant company is, you should know a few other things about maintaining one. And we’d be going over those steps in this article by answering some essential questions.
Why Dormant Companies?
The purpose of dormant company is invest now and enjoy the fruits later is the concept under which the idea of dormant emerges. If the company wants to hold assets or intellectual properties and use it later when the formation of industry has been completed .
Suppose Company wants to start the operations after two years but the land prices today are very cheap and the same would be very costly after two years. Hence company will buy the land and hold it for two years and thereafter start the company, until that time, company apply for dormant status.
Similarly the company will complete all formalities at present and actual commencement of operations will take some more time. To avoid procedural delays, the company will complete all formalities and apply for dormant status until commencement of operations.
After formation of company, the company will apply for dormant status until commencement of operations. The immediate question that arises why would anyone create a company and register it only to get it declared as dormant? The main purpose of obtaining or retaining the status of a company is so that the company retains its corporate status despite not carrying out any business.
Report this ad So restarting dormant company is easier than fresh start of company. So Company with drmant status can always have an option to start operations whenever it wants without following further procedures and subject to certain conditons. Well, the restart is always better than a fresh start and dormant companies offer this advantage.
So if a company chooses to take a backseat for a good reason then they can always restart when they want to, without further procedures subject to certain conditions. So as a dormant company, the company may not be active but it still has a status of a company in the eyes of law.
How Can a Company be Dormant?
For a new company, establishing a dormant company from the ground up is relatively simple. You can learn how to start a company in 5 steps.
Following the company’s formation, HMRC must notify the inactive status. HMRC stands for Her Majesty’s Revenue and Customs, and it’s the tax authority in the UK.
They will respond in about 15 days to confirm its dormant status. After HMRC contacts you to verify the company’s inactive status, it isn’t necessary to get them again until the company becomes active.
But, suppose the company was active before deciding to go dormant. In that case, you will need to complete HMRC’s Company Tax Return and pay the relevant Corporation Tax for the busy period.
Following that, the company will be considered inactive until it resumes trading. HMRC’s official website contains relevant submissions, filings, and contact information.
Does Anything Need to be Filed with Companies House?
The short answer is yes. Dormant companies must file inactive accounts and a confirmation statement with Companies House every year.
The reports include a balance sheet as well as any relevant notes. These can be emailed to Companies House or mailed by completing the dormant company accounts form. Another document, in addition to those mentioned above, must be mailed.
This document is known as “Annual Returns,” It contains some required information about a dormant company. Some of this information is as follows:
- The name of the company
- The address of the registered office
- The location of the company’s statutory records
- Information about issued shares
- The nature of the company’s operations (Standard Industrial Classification “SIC” code)
Note: A dormant company’s SIC code is 99999. Suppose the business goes dormant or ceases to trade after a period of activity. In that case, the company’s SIC code must be updated on the following confirmation statement.
How Long Can a Company be Kept Dormant?
There is no time limit or deadline for keeping a company dormant. The company can be left in a steady dormant state until it’s ready to begin trading. And the company remains that way as long as you continue to keep its annual returns and annual accounts up to date with Companies House each year.
Does a Dormant Company Require a Bank Account?
Dormant companies cannot spend or receive money; unless they become Corporation Tax active. Closing all business bank accounts in a company’s name is best to maintain an inactive trading status.
Remember to do the following before closing any active business bank accounts:
- Pay off all bills and liabilities, including bank fees.
- All direct debits and standing orders must be canceled.
- Contact all the suppliers and service providers to ensure that no additional payments are deducted from the company’s account.
When everything is in order, contact the bank or go in person to formally close the company’s business bank account.
If you decide to resume trading, you can simply open a new business bank account for the company. Until then, you can pay for any costs associated with the dormant business using a personal bank account.
How Can a Dormant Company be Reactivated?
You must first complete three basic steps to reactivate a dormant company. If the inactive company reactivates, you must notify HMRC within three months.
But assume the business has previously traded. First, the company’s directors must tell HMRC that it has resumed trading by registering for Corporation Tax.
Using HMRC’s online streamlined form makes this simple.
Following the payment of the tax bills within nine months of the accounting reference date, the registered company accounts must be submitted to Companies House. Finally, the company tax return must be submitted to HMRC within twelve months of the accounting reference date.
In conclusion, You can launch a dormant company whenever you please. Still, you must ensure you contact HMRC and file the necessary details at Companies House on time.
You still need to submit static company files with the same motif as an active company.
Most of the time, it’s not because they’ve gone out of business. It’s primarily because the business might want to register an idea before someone else does.
It’s also a way to buy time while looking for other resources to propel the company into total production.