Dormant Accounts and Tax Filing for Inactive Companies

This blog provides clear information on the responsibilities of UK inactive companies and the implications for tax filing.

Dormant Company: What Are They?

A UK firm with "no significant accounting transactions" during a financial year is inactive. This suggests the corporation is not trading, selling, or spending. However, a firm might be inactive for Corporation Tax purposes but activity-light for other reasons.

Common Causes for Corporate Dormancy

Holding property or intellectual property Reserving a company name for future use Undergoing reorganisation or restructuring Pausing trading temporarily

Accounting Requirements for Dormant Companies

Dormant companies still need to handle certain accounting tasks even when they’re not trading:

1. Preparing Dormant Company Accounts

Dormant companies must file annual accounts, though these are usually simpler, typically including:

• Balance sheet
• Notes to accounts
• Director’s statement

The balance sheet often shows only issued share capital, as there are no other transactions.

2. Filing with Companies House

Dormant companies must submit accounts annually to Companies House:

• First accounts are due 21 months after incorporation.
• Subsequent accounts are due 9 months after the financial year-end.

Micro-entities and small businesses can file a simplified balance sheet online.

3. Annual Confirmation Statement

All companies, including dormant ones, must submit a yearly confirmation statement (previously the annual return) to verify that Companies House has up-to-date company information.

Taxes on Dormant Companies

Even without trading activity, dormant companies have certain tax obligations:

1. Corporation Tax

A company is considered dormant for Corporation Tax if it:

• Hasn’t started trading
• Has ceased trading and has no income
• Operates as a flat management company with no revenue

If your company meets these conditions, inform HMRC of its inactive status online or by mail. Once accepted as dormant, you won’t need to file Company Tax Returns or pay Corporation Tax. However, if HMRC sends a notice for a tax return, respond by the required deadline.

2. VAT

For inactive companies, cancel VAT registration using your VAT online account or by sending form VAT 7 by mail.

If dormancy is temporary and you plan to resume within two years, you may keep the VAT registration, but you’ll need to file zero VAT returns during this period.

3. National Insurance and PAYE

If you stop employing staff, inform HMRC by updating your PAYE account or by submitting an EYU (Earlier Year Update) if you use payroll software.

Reactivating a Dormant Company

If your company begins trading again or circumstances change:

• Notify HMRC that it is no longer Corporation Tax dormant, online or by mail.
• Maintain full accounting records.
• File complete annual accounts with Companies House.
• Submit and pay Corporation Tax as needed.
• Re-register for VAT if turnover exceeds £90,000 for the 2024/25 tax year.
• Set up PAYE if you employ staff again.

How it Works on Taxd: 3 Steps to File For Your Dormant Company

Taxd is a UK online tax software designed to make the tax filing process easy and smooth.

So first, you need to go to Taxd Intro, answer a few introductory questions, enter your company house number and company details, and log in to your account.

Then, these are the three sections you need to complete:

1. Company Info: Enter details such as the company name, accounting period, number of employees, company UTR, and authentication code.

2. Dormant Company: Here, answer a few questions, like why the company is dormant and whether it met the micro-entity conditions in its previous filing.

3. Company Admin: Provide bank account details, nominal value, and any other relevant information.

That’s it. Review all the information you've entered before submitting.

Conclusion

Managing dormat corporations in the UK requires attention to detail and knowledge of legal and financial regulations. Compliance with Companies House and HMRC rules is essential, even if the requirements are less stringent than for active companies.

Given the complexities of dormant company laws, consulting a skilled tax professional from Taxd is advisable. We can provide tailored advice to help you meet your obligations while reducing administrative burdens.

FAQs

1. How long can a corporation be inactive in the UK?

There is no legal limit on how long a corporation can remain inactive in the UK. A company can stay inactive indefinitely if it:

• Files annual accounts with Companies House.
• Submits a yearly confirmation statement.
• Complies with Companies House and HMRC regulations.

However, if you don’t plan to use the company again, consider dissolving it to avoid ongoing administrative tasks.

2. Should I submit a tax return for my inactive company?

Generally, if HMRC has classified your business as inactive for Corporation Tax, you don’t need to submit a tax return. However:

• Notify HMRC when your business becomes inactive.
• Respond to any notice from HMRC requesting a Company Tax Return, even if it’s just to confirm the company is dormant.
• You still need to file annual accounts with Companies House.
• If your company earns any income or profit, it may not be considered entirely inactive for tax purposes, and you may need to file a return.

3. What is considered a "significant accounting transaction" that would reactivate my company?

Significant transactions include:

• Trading or receiving revenue.
• Incurring business-related expenses.
• Buying or selling assets.

However, the following are typically not considered significant transactions:

• Payment for shares upon incorporation.
• Fees paid to Companies House for filing reports.
• Penalties for late filings.

If you’re unsure, consult an accountant or HMRC.

4. Can an inactive corporation have a bank account with funds? Yes, an inactive company can have a bank account with money. However:

• Simply having money doesn’t make the company active. However, any interest earned on those funds may be considered income, which could affect the company’s tax status.
• Costs associated with the account usually aren’t considered significant transactions, but check with HMRC for clarification.
• If the company uses the funds for any business purposes, it will no longer be classified as inactive.