Definition of a dormant company.
Companies House and HMRC have different definitions.
Companies House considers a company that has had no significant transactions during the accounting period as being dormant. A significant accounting transaction is one that should be entered into the company’s accounting records.
The following transactions are not considered significant and can be ignored for assessing whether a company is dormant.
- Payment for shares
- Filing fees paid to Companies House
- Payment for civil penalties charged by Companies House for late filings.
Fees charged by accountants and other third parties for either preparing dormant company accounts or incorporating the company, are considered significant and would need to be entered into the accounts. Professional fees should be invoiced to the shareholders and not the company if the owners of a company wish to maintain the dormant status of a company.
HMRC consider a company to be dormant if it is not trading. A company is dormant if it has no income from investments and other assets that it holds, and it is not incurring costs other than statutory compliance costs, or it is a Right To Manage (RTM) company.
Annual Compliance obligations
Once HMRC has agreed that the company is dormant or an RTM company, there will be no need to file corporation tax returns.
Even though a company is dormant, it will still need to submit accounts and an annual confirmation statement to Companies House.
Dormant Company Accounts
The accounts of a dormant company are relatively simple. They need a statement confirming that the company was dormant throughout the accounting period, a balance sheet with notes and the figures from the previous year.
A company must file its first set of accounts within 21 months of the date on which it is incorporated. The second and subsequent accounts must be filed within nine months of the Accounting Reference Date (ARD)
Company A is formed on 9th April 2018. Its ARD will be 30th April, and its first accounts will be for the period 9th April 2018 to 30th April 2019. The first accounts must be filed by 8th January 2020. The next accounts will be for the year ended 30th April 2020 which must be filed at Companies House no later than 31st January 2021.
Penalties for filing accounts late.
Companies House operate a punitive penalty regime when accounts are filed late as follows:
- When filed up to 1 month late - £150
- When filed between 1 and 3 months late- £375
- When filed between 3 and 6 months late - £750
- When filed more than 6 months late - £1500
These fines are doubled if accounts were filed late in previous years. These fines operate for dormant companies as well.