Many benefits come with keeping a dormant company, especially if you keep it in the public domain even though it’s not actively operating. Using this approach to business is practical when you have to temporarily stop trading or protect your limited liability company’s name. In case of the latter, your competitors will not be able to use your name when you register it.
But it’s needful to state that a dormant company is more than a business entity that’s forgotten on the shelf. They also require some management level and need to meet specific requirements to maintain their status and continue the benefits that come with them.
This article covers the details of the dormant company, how to maintain its status, and use it to save some money. If you’re ready, then let’s begin by looking at what is a dormant company.
What is a Dormant Company?
The moment you register a limited company, it is incorporated, and HMRC is notified automatically by the Companies House. But the flow of information between the Companies House and HMRC doesn’t go any further. Since these two government agencies will no longer share any information regarding your company’s status, the responsibility falls to you to alert them that your company is dormant.
There’s a good reason why the flow of information between these two institutions is so limited. That’s because each agency has a different definition for a dormant company. Therefore, your company may be dormant regarding the Companies House, but not HMRC may regard it as active.
Don’t worry if it sounds complicated; here are the respective definitions of a dormant company according to the Companies House and HMRC.
A Dormant Company According to Companies House
According to the Companies House, a limited company is dormant because it didn’t have any “significant accounting transactions” over the entire accounting period. In this case, a significant accounting transaction is any transaction that should appear in the accounting records of the business. So it’s necessary to keep this in mind whether you choose to file dormant company accounts normally or through a third-party agency.
The key here is the term “no significant accounting transaction.” It helps differentiate between a dormant company and a non-trading company. You can have a non-trading company that legally gets transactions recorded in its books. However, things are different with dormant companies. For a registered company to remain dormant with the Companies House, you cannot have any financial activity apart from the Companies House’s requirements.
Dormant Company According to HMRC
The HMRC considers a company dormant if it meets the following descriptions:
- A new company that’s yet to trade
- A company that may never trade because its formation was only to hold an asset like intellectual property or land
- Companies that have stopped trading and flagged for removal from the Companies Register
- A ‘shell’ or ‘off-the-shelf’ company held by a third-party agent to sell it
- An existing company that’s no longer in trading
If you already own a dormant company, it’s possible to lose the “dormant” status of your limited company for Corporation Tax purposes if the company does any of the following:
- Provide any services
- Manage investments
- Earn any form of income
- Buy or sell intending to gain profit or surplus
- Acquire any interests
- Engage in any business activity like professional activity or trading
Having stated these, it’s vital to note that you have to discharge specific responsibilities if you own a dormant limited company to perceive your status.
How to Prevent Expenses And Save With Your Dormant Company
Due to the strict regulation governing the maintenance of a dormant company, it’s easy to incur a penalty and avoidable expenses at times. It’s advisable to terminate any business accounts associated with your company to avoid paying any penalties to the HMRC and Companies House. Usually, this removes the possibility of any confusion regarding significant transactions.
When the time comes to commerce trading, it’s cheaper and easier to open a new account. This helps you save time and money. You can cut down on costs such as incorporation fees, professional fees, and legal fees during its dormant periods by using a personal account.
However, remember to ensure that all fees, charges, and bills associated with your business account are paid before you attempt to close your business account. Also, don’t forget to cancel all standing orders and direct debits. Furthermore, it’s recommended that you notify all suppliers that the business account in question will no longer accept any future transactions.
Keeping a dormant company is one of the most affordable ways to ensure your business name remains in the public domain without the burden of running an active business. It also provides the foundation when the time is right to start trading so that you can hit the ground running under a name that’s already registered. This saves you a lot of hustle and time. By speeding up the entire process, you’ll begin operation with an already established business. As you already know, time is money in the business world. Therefore, a dormant company may be the most affordable route to launch yourself when you’re all set to trade.