There are several reasons why a dormant company can be set up.
Nowadays, more than 300,000 dormant companies are registered with Companies House.
It is good to keep in mind that ‘inactive companies’, called ‘dormant’, benefit from reduced administrative requirements and this is certainly one of the reasons why it could be convenient to keep a company ‘dormant’.
Actually, the reasons are many. In example, setting up a company which will be used in the future and keeping it dormant will allow the entrepreneur to be ready to enter the market at the right time and be ready to trade straight away. This could be a good idea also if you have a good name for your company in mind and you want to block it before somebody else register it.
Another motivation that may push to start the procedure is that linked to the transition between an active society and a dormant company. A career break, a temporary relocation abroad or other events could make impossible to keep doing business in the short time. While waiting for better times in which being able to do business again, it could be a good idea to keep a company dormant.
Another technical motivation is that of using the status of ‘dormant’ for the possession of patents (trademarks) and corporate assets without having to pay any kind of taxes.
The dormant status is also a prerequisite for closing a company (Strike-off procedure), for which three months of continuous inactivity are required.
However, it is of fundamental importance to know the key points treated by HMRC and the procedures for dealing with the latter in order to make the most out of the advantages deriving from this status and minimize the tax burden.
There are several cases for which your company can be considered as “dormant” for Corporation Taxes’ purposes::
- suspension of trade activity and lack of other revenues, for example investments;
- new ‘limited company’ that has not started trading yet;
- an association or a club without legal personality and with less than £100 per year;
- a flat management company (residents can jointly manage a property, for example a complex of flats).
It is important to specify that for trading or commercial activity is meant buying, selling and renting properties, advertising, employing someone or getting interests. HMRC releases and constantly updates a detailed guide on what is relevant as a ‘dormant’ for ‘corporation tax’.
NOTICE FROM HMRC
It may be possible that you receive a notice from HMRC where you are informed that your company will be treated as ‘dormant’ or that you will not need to pay ‘corporation tax’ or submit your income tax return.
Alternatively, it is a possibility to contact personally HMRC for the acquisition of the ‘dormant’ status in the specific cases listed above and therefore communicate it by telephone or by post.
In the event that you have submitted a company tax return or have received a notice for the delivery of a company tax return, you will still have to file online a declaration of your company's income. That will prove to HMRC that your company is actually inactive and no further warnings will be received.
SOME IMPORTANT CASES
For the ‘limited companies’, a ‘confirmation statement’ must be submitted and this depends on how Companies House considers the limited company, whether dormant or not.
However, for VAT registered is necessary to cancel the registration within 30 days from the beginning of the inactivity status.
Concerning the employees, it is necessary to close the PAYE scheme, if you do not have the intention of restarting the activity at a later time.
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