How to Make a Limited Company Dormant

A lot of business owners decide to set their business up as a limited company to benefit from the protection offered in this type of business formation, as well as to secure the ideal business name before trading.

Some limited companies will be dormant from the day they are formed, whereas others may become dormant at a later date after having been actively trading for several months or years.

The following guide explains how a limited company can be made dormant to ensure that business owners fulfil their legal obligations.

How do you make a limited company dormant?

A dormant company, according to Companies House, is defined as being:

"A company is dormant if it has had no ‘significant accounting transactions' during the accounting period. A significant accounting transaction is one which the company should enter in its accounting records"

Understanding what is meant by a ‘dormant company' will help ensure that business owners can be certain that their limited company is fully dormant and that their liabilities are reduced.

There is no official or legal form that a business owner must complete to set out that their limited company is dormant. However, it is wise to notify HMRC by letter to detail that trading will cease or to let them know that trading won't commence instantly if the company has been set up with a view to beginning trading a later date. In doing so, the business owner will ensure that they do not receive tax return requests from HMRC until trading commences.

Second Year of Trading in a Limited Company

Once a limited company has been running for a full year, the owner will need to complete updates for Companies House to ensure that all details are correct and that official records are maintained.

Companies House will request an annual return from the owned, and that will set out all of the statutory information that is required, including the addition of any shareholders if necessary.

Once the limited company has been trading for around 21 months, Companies House will request that the business owner submit their first Annual Accounts, unless the company has been made officially dormant. If the company has been made dormant, the dormant accounts can be submitted if requested.

If the business owner does not submit their annual accounts or dormant accounts by the date outlined on the Companies House request, they will face a fine for submitting the information late.

Each Year of Trading from Year Three Onwards

Companies House will require business owners to submit annual or dormant accounts and an Annual Return each year, even if the company is dormant. If the limited company remains in a dormant state, the business owner will only need to complete and submit the Dormant Company Accounts for each year the company is dormant.

Owners of dormant limited companies will not have any corporation tax liability until the company begins to actively trade again and make a profit.

Companies are not bound by a time limit when they are made dormant, and so there is no need for business owners to trade again within any time limit. Companies House will not ‘strike off' a dormant company because of inactivity. Providing the owner maintains proper submission of their annual accounts and Annual Return, the company can remain dormant for as long as required.

Will a dormant company remain active with Companies House?

Companies House will keep all registered dormant companies listed as ‘active' in their company database. This simply means that the business is recognised as being a current business, rather than one that is actively trading.

If the directors of the limited company choose to close the company down completely, the dormant company will be changed from an ‘active' state on the Companies House system to ‘active – proposal to strike off'. Once the close down of the business is complete, the company status will be changed to ‘dissolved'.