Do you own a business that is not making any profit, and you cannot let it go? Are you considering making your company dormant rather than shutting it down entirely?
A dormant company is one that has been registered with Companies House but is not currently conducting any business activity.
There are numerous reasons company owners choose to make their business dormant, but it can be beneficial to preserve money and create future plans.
In this blog, let’s check how to make a company dormant UK.
Table of contents
- How to make a limited company dormant UK?
- Why should I make my company dormant?
- How to make my company dormant?
- How to inform HMRC that your company is dormant?
- How can you restart your dormant company?
- How can you get money out of your dormant company?
- Can a company make or receive payments when dormant?
- Final thoughts
How to make a limited company dormant UK?
Any firm can become dormant, but each structure has specific rules.
For instance, LLPs cannot go dormant unless they have a single member who intends to shut down the company without transferring assets or liquidating them elsewhere.
A limited business has more alternatives when selecting what kind of closure they want, including dormant and voluntary liquidation from the Registrar at Companies House.
Why should I make my company dormant?
If you’re in the subcontracting or contracting business, then there are a few advantages to making your company dormant.
For instance, if you want to take a break from contracting to get permanent work, applying for dormancy at Companies House will benefit you.
You can register a business as dormant for future use. For example, you can register a limited company early to preserve a business name.
How to make a company dormant UK
Before taking any further steps, you must first inform the local Corporation Tax office about your intention to put the business on temporary hold, which should be in writing.
If your company was active before your dormancy application, you must submit a Company Tax Return to the HMRC.
The procedure is carried out through the HMRC website portal, after which they will examine your documents and change the status of your company in their records to “dormant”. Any unpaid Corporation Tax must also be resolved before HMRC will approve your request.
Lastly, before your business is declared dormant, you must close your payroll and ensure all outstanding bills are paid.
All dormant businesses that do not adhere to this obligation from Companies House will suffer penalties and other fines, including the possibility of having their company name removed from their records.
How to inform HMRC that your company is dormant?
The process of declaring a company dormant is simple- you can inform HMRC that your business is dormant for corporation tax if it is not conducting any operations and receives no other income.
Businesses that have never had the notice to submit a Company Tax Return can inform HMRC over the phone.
Those who received this notice or previously submitted a return must file a Company Tax return online to inform HMRC that the company is now dormant or, HMRC might write to you to inform you that they are treating your company as dormant and that you won’t need to submit Company Tax Returns or pay Corporation Tax.
How can you restart your dormant company?
The following steps must be taken to restart your dormant business:
- Apply for PAYE and VAT schemes if needed.
- Submit a confirmation statement to Companies House.
- Ensure there are no debts or outstanding liabilities owed by the company when it comes back into operation.
- Keep in mind to pay debts before making the business active again.
There are no limitations on how long a business can stay dormant. So you can determine how long you want to hold onto your inactive firm before reactivating it (or leaving it dormant).
Nevertheless, remember that VAT registrations have an expiry date, after which they are no longer valid until renewed.
The same applies to PAYE schemes, so if they are attached to your dormant business, you must also maintain track of them.
How can you get money out of your dormant company?
A dormant corporation cannot distribute dividends to shareholders without losing its status as a dormant firm.
By making pension payments on behalf of the company’s directors, paying off outstanding loans to business members, or paying shareholders final dividend payments, you can extract any remaining money from your dormant company tax-efficiently. Make sure you do all these before makign it dormant.
Can a company make or receive payments when dormant?
A dormant business can make the following transactions through a business bank account:
- Paying late filing penalties to HMRC
- Paying for shares from the first shareholders.
- Paying the necessary costs to Companies House to file a confirmation statement and change the company name
Any other kind of payment made or received is regarded as a “major accounting transaction,” jeopardizing the dormant status and requiring the submission of full statutory accounts.
So we saw how to make a company dormant UK simply, but you must ensure that you follow all the necessary steps.
It will be easier to avoid any potential fines if you adhere to the regulations regarding dormant companies and keep HMRC and Companies House informed of your activities.
Remember to pay all your liabilities or debts before making your business dormant and that there should be no trading activity after that time.
There are many advantages to making your business dormant rather than shutting it down entirely.
As long as you follow the regulations, you will still have the opportunity to succeed in the business.