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Dormant Company Accounts and HMRC Tax Returns Explained

I’ve updated this post on 15 July 2020

A dormant company is one that is on the Companies House register but not used for any trade. Registering a dormant company is a great way to reserve a company name and future-proof your business so it’s ready for you to use at the right point in your business lifecycle.

If you choose to form a dormant limited company, even though you haven’t traded, there are still Companies House and HMRC filing deadlines you need to be aware of. 

Miss them and you’ll face automatic penalties!

I put this guide together to share the basics of dormant companies, where you can find more help telling HMRC a company is dormant, and filing dormant company accounts using an AA02 form.

If you are self-employed or a sole trader and trading under your own name then you are not incorporated. If you or a professional on your behalf has formed a company that uses the suffix Ltd or LLP, then you have an incorporated business.

You can check whether you have an incorporated business by heading over to the Companies House website and using their Online Company Checker.

What is a Dormant Company?

A dormant company is defined by both HMRC and Companies House as an incorporated business which has no significant transactions

Significant transactions means: 

  • Trade
  • Income
  • Business expenses
  • Bank account transactions

There are some ‘insignificant’ transactions that you can pay for which won’t affect dormant company status. These include:

  • filing fees paid to Companies House
  • penalties for late filing of accounts
  • late filing penalties for HMRC corporation tax return
  • money paid for shares when the company was incorporated

If you have paid for any other expenses or received any income, then this may jeopardise dormant status. This would mean you need to submit of full statutory accounts and HMRC corporation tax return.

When it comes to defining Dormant Company status, HMRC goes a little further than Companies House. Therefore, you’ll need to make sure you meet the following additional criteria:

  • a new company that’s not yet trading
  • an ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
  • a company that will never be trading because it has been formed to own assets, such as land or intellectual property
  • an existing company that has been – but is not currently – trading
  • a company that’s no longer trading and is destined to be removed from the Companies Register

Why Register a Dormant Company?

Many businesses and individuals choose to open a Dormant Company even though they need to file paperwork with Companies House and HMRC. 

Some of the common reasons that I been asked to form a non-trading LTDs by my clients in the past include: 

  • to reserve a company name while preparing to launch a business officially;
  • retaining a company name for a previously active business;
  • to help a business owner who is temporarily stopping trading and needs an extended period of time off due to illness, maternity leave or travel but they want to come back to it in the future;
  • the owner of a business is planning to open up multiple businesses or forms of income they want to account for in different companies.

There is no restriction on the number of Dormant Companies a person can form and own. However, the rules apply to each Ltd company individually.

Pre-Trading Expenses and Activities

You can undertake certain initial pre-trading activities and still retain dormant status. But, you must not be engaged in any business activities or trade. This then leaves you to start negotiating contracts, research the market and prepare your business plan.

You can also spend some preliminary money on pre-trading expenses to help you decide whether you should start your business. Make sure you keep all your receipts because HMRC will let you claim pre-trading expenses going back 7 years, as long as there is paperwork to support the claim.

How to Register a Dormant Company

Registering a dormant company requires the same process as registering one that will be trading.

You’ll need to apply through Companies House. They are responsible for keeping a record of UK Limited Companies and checking they follow all the rules.

It will appear on the Companies House register alongside the trading companies.

To set up a dormant company you’ll need to:

  • Check the Limited Company name you want is available at Companies House;
  • Choose Company Director(s);
  • Decide who the shareholders will be;
  • Identify the SIC code;
  • Prepare your memorandum and articles of association;
  • Register with Companies House and HMRC.

Follow this guide for help forming a Limited Company and guidance on finding all the information you need.

Companies House and HMRC Dormant Company Forms

Once registered with Companies House, the next step is to make sure you are aware of all the ongoing filing deadlines.

Here’s a summary of what you need to do:

  1. File Dormant Company Accounts (either online or by printing off an AA02 Form) annually with Companies House;
  2. Send a Confirmation Statement annually with Companies House;
  3. File an HMRC Tax Return annually or notify them of dormant status by letter.

Dormant Company Accounts

Registered companies need to file information with Companies House every year because a certain amount of information on Ltd companies needs to be made publically available, whether they have traded or not.

You need to file ‘Dormant Company Accounts’ are required once a year which is a simplified balance sheet and disclosure that the company did not trade, signed by the Director.

The easiest way to do this is by completing an AA02 form.

When Should You File Dormant Company Accounts?

The accounts for your dormant company must be filed with Companies House 9 months after the end of the financial year.

For example:

If your company financial year ends on 31 December 2019, then you must file your accounts by 30 September 2020.

Don’t miss the deadline! There is an automatic £100 penalty for missing it and Companies House don’t give much room for appeal on this.

The AA02 Dormant Company Form Explained

An AA02 is a form produced by Companies House.

It makes it easy for people to stay on top of their filing requirements because it contains all the legal declarations and boxes you need to fill out to stay on the right side of the rules.

It can be filled out online or printed and posted back to Companies House.

One AA02 form relates to one financial year. So that means you’ll need to submit one every year on an ongoing basis, as long as your company is on the Companies House register.

What Does an AA02 Form Look Like?

An AA02 Form contains information such as:

  • Company name;
  • Company number;
  • Share capital;
  • Share types.

How to Complete Your AA02 Form Online

Completing the form online is usually easier and quicker, although the online version of the form looks slightly different to the paper one.

You’ll need to use the service known as Companies House Webfiling and need your Company Authentication Code as well as an online account.

dormant company accounts guide
How to File Dormant Company Accounts Online £3.49

How to Fill in the Paper AA02 Form

You can download and fill in a paper version and send back a signed copy to Companies House at:

The Registrar of Companies,
Companies House,
Crown Way,
CF14 3UZ.

Dormant Company Accounts Example

It’s really hard for me to give you an example. That’s because each company listed on Companies House has different owners, directors and setups.

However, what I can say is that every set of accounts must include a Balance Sheet and Directors Declaration.

In my guide “How to File Dormant Company Accounts Online” I walk you through how to find out all the information you need so you’ll fill out your AA02 accurately for your own situation.

Dormant Company Tax Return

Dormant company corporation tax shouldn’t be overlooked. Of course, with no trade or expenses, there will be no corporation tax to pay. But there are forms you need to fill out, otherwise you’ll face automatic penalties starting at £100.

HMRC will probably post you a Notice to Deliver a Company Tax Return. This is a letter which acts as a reminder to send in a corporation tax return. 

You just need to make sure you either file a dormant company tax return as requested or notify HMRC about dormant status.

How to Tell HMRC a Company is Dormant

You need to notify HMRC of dormant company status because their default assumption is that every company registered at Companies House needs to submit a corporation tax return and pay tax. 

So, whether you have formed a new Company or own a Company that has gone from trading to dormant, HMRC will be expecting a tax return.

That’s means it’s down to you to tell HMRC your company is not trading.

If you do not file the expected tax return on time, HMRC will issue an automatic £100 penalty.

In my guide “How to File Dormant Company Accounts Online” I share advice on how to handle HMRC, including a sample letter that you’ll need to send them.

dormant company accounts guide
How to File Dormant Company Accounts Online £3.49

Can I Make a Trading LTD Dormant?

A Limited Company can go from trading to dormant, but it would still need to meet the above criteria.

That means it must have no significant transactions so you’ll need to have tied up all your loose ends.

Follow this guide for advice on making your Limited Company Dormant so you can unwind your business but save the registered name.

How long can a Limited Company be dormant?

A company can remain dormant for any length of time. You just need to make sure you continue to file all necessary paperwork to keep it on the register at Companies House.

Does a dormant company need a bank account?

Having a business bank account is a sign that a business is trading. So, you shouldn’t need a bank account for a dormant LTD.

In fact, it is in the guidance that you should not have one.

If you are closing down a trading company, then you should make sure all your customers paid you and all tax has been repaid and then shut your business bank account. Otherwise, you may not be able to receive the money once you close your bank account.

What happens when a dormant company starts to trade

If a company begins to trade, then you must let HMRC know of the change in status within 3 months.

That way they know they need to receive full corporation tax returns.

There is no need to let Companies House know about the change in trading status. However, you should complete full statutory accounts rather than using an AA02 form when the filing time comes.

Do dormant accounts need to be Audited?

Only certain Companies need to be audited. Generally, that’s due to being publicly traded, assets, turnover or a requirement by a lender.

Although accounts must be filed for a dormant company, they are much more simplified and do not need to be audited.

Can I sue a dormant company?

Yes, you can sue a company whether it is trading or not because it is on the Companies House register. It is still in existence and there is no rule saying that you cannot take action against a dormant company simply because it is not trading.

Do I need an accountant for a dormant company?

There is no legal requirement to use an accountant, but it is your responsibility to make sure you file accounts and corporation tax return on time.

The AA02 form and telling HMRC about dormant status makes managing your company easy.

In my guide “How to File Dormant Company Accounts Online” I share advice on preparing dormant accounts and how to handle HMRC, including a sample letter that you’ll need to send them.

dormant company accounts guide
How to File Dormant Company Accounts Online £3.49
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