Over the past few years, the United Kingdom (UK) has consistently maintained a spot in the top 10 of the World Bank’s Ease of Doing Business rankings, showcasing its business-friendly environment. The UK is renowned for its success in attracting venture capital and crowdfunding, making it a leader in entrepreneurial investment.
Registering a company in England offers numerous advantages, including increased credibility with partners and suppliers, access to untapped markets, and the opportunity to leverage the favorable business climate in the UK. Today, we will try to drill down on how to register a dormant company.
What is a dormant company?
A dormant company in the United Kingdom is a company that has been registered with Companies House but is not actively engaged in any commercial activity or generating income at present.
According to the British Tax Office, Her Majesty’s Revenue and Customs (HMRC), such companies are considered inactive and are not subject to taxation.
It’s worth noting that a company can be classified as dormant from the time of its incorporation or after a period of trading activity. If you’re wondering how to manage a dormant company in the UK, here are some key points to consider.
The reasons why some businesses need a dormant company format
Setting up a company in the UK and then declaring it inactive or dormant may seem counterintuitive at first glance. However, there are various legitimate reasons why a company may choose to be classified as dormant. For instance, it may be necessary to establish a company to reserve a unique business name for future use when launching a new venture. Alternatively, a previously active business may undergo restructuring, requiring it to be declared dormant temporarily.
There are also personal reasons that may lead to a company being classified as dormant. For example, the owner may need to interrupt business activities due to circumstances such as pregnancy and childbirth, serious illness, long-term travel, sabbatical, burnout, and more.
While a company can remain dormant indefinitely, it’s important to notify the Companies House of this decision and fulfill certain requirements accordingly. The company must submit a resolution to the Companies House, stating its dormant status, and refrain from conducting any accounting transactions.
This includes refraining from engaging in activities such as:
- Generating reports that disclose information about the company’s potential debts and assets.
- Making or receiving money transfers to or from any entity.
Essentially, a dormant company in the UK cannot engage in any financial transactions or possess profitable debts or assets. Additionally, as the Hoxton Mix explains, a dormant UK company is required to file annual reports to document any changes and confirm that its corporate accounts remain inactive. This ensures compliance with the relevant regulations when operating a dormant company in the UK.
Can a dormant UK company carry on trading activities?
A dormant firm may not conduct trading activities or earn any form of income involving:
- The purchase/ sale of services or goods.
- The hiring of staff.
- Leasing or purchasing of the real estate.
- Managing investments and receiving dividends.
- Payment of directors’ salaries.
- payment of dividends to the company’s shareholders.
- Earning interest or paying bank charges.
- If a dormant UK company does any of the above, it will lose its dormant status and will have to prepare full accounts as required by UK law.
How to register a dormant company?
To register a dormant company in the UK or transfer an existing company to dormant status, it is necessary to apply to the UK tax authorities. It’s important to specify the exact date when all business activities will cease in the application. Once the application is submitted, the company’s registered office will receive a confirmation notification within 15 days, confirming the company’s inactive status. As a result, the company will no longer be obligated to maintain accounting records or submit annual reports.
Before applying for a transfer to dormant status, it is crucial to ensure that all outstanding bills and liabilities have been settled. This includes paying any bills payable, salaries to employees and directors, and distributing dividends to shareholders, if applicable. Taking care of these financial obligations before transferring to dormant status is essential to ensure compliance with relevant regulations and maintain good financial standing.
It’s worth noting that the process of transferring a company to dormant status may involve additional legal and financial considerations, depending on the specific circumstances of the company. Seeking professional advice from a qualified accountant, tax advisor, or legal expert is recommended to ensure that all legal requirements are met and the company’s status is accurately reflected with the relevant authorities. This is how to register a dormant company in the UK.
Dormant company reporting in the UK
Inactive UK firms must file annual reports confirming their dormant status. Such documents can be sent online using a special form AA02. Reporting can be done within 9 months after the end of the financial year.
The supporting report must contain the following information:
- The legal address of the company.
- The details of the directors.
- Secretary’s details.
- Information on shareholders.
- Information about the issued shares.
- Line of business of the company.
- Information on the location of the articles of association.
This information is necessary to confirm the information about the company, which is placed in the public register. If any information in the company has changed, it is worth notifying the Registrar’s Office as soon as possible.
Those dormant companies which were previously carrying out commercial activities before becoming dormant should file a tax return with HMRC. If companies in the UK became dormant immediately after incorporation, there is no need to file a tax return.
Final thoughts
If you already have an existing company in the UK but are not currently utilizing it for business activities, it is important to consider transferring it to dormant status. This ensures that the company is properly classified and complies with relevant regulations. Similarly, if you are registering a new company in the UK with the intention of not immediately engaging in business operations, you can declare it as dormant.
Transferring a company to dormant status can be beneficial in various scenarios. By declaring a company dormant, you can maintain its legal existence while temporarily suspending business activities.
If you are considering registering a British company or transferring an existing company to dormant status, it’s advisable to seek professional assistance to ensure compliance with legal requirements and proper documentation. Don’t hesitate to contact the Hoxton Mix for expert assistance with your UK company registration needs.