A contractor's guide to dormant and non-trading companies

Before it’s feasible to offer contractors and other ContractorUK readers a guide to dormant and non-trading companies, a definition or two first is a must.

What is a dormant or non-trading company?

A company is classed ‘dormant’ if there are no significant transactions during the accounting period and the business is not actively trading.

A non-trading company is similar to a dormant company in the way that it is inactive, although a non-trading company engages in financial transactions, while a dormant company is prohibited from doing so.

As a contractor, it’s essential to understand the implications of having a dormant company or non-trading company, and not just because either will instantly downsize the volume of information that you will need to report to HMRC and Companies House, writes Paul Williamson of Selling My Business.

What makes a company dormant or non-trading?

A company is classed as dormant if it is not:

• Trading;
• Conducting business activity, or
• Receiving income.

In the view of Companies House, a company is classed as dormant if no significant accounting transactions are carried out. This includes any transactions that would need to be recorded into the accounting records of the business, such as investment income or the sale of goods.

‘Trading’ includes buying, selling, renting, advertising, employing staff and earning interest.

A non-trading company is inactive, but the key differentiating factor is that transactions are allowed, whereas this is not the case for dormant companies.

What are the filing requirements of a dormant or non-trading company?

You will need to submit a company tax return to inform HMRC that your company is dormant. Once complete, you won’t need to pay corporation tax or submit any further company tax returns.

You must file annual accounts and a confirmation statement.

If you’re VAT registered and you intend to resume trading at some point, then return empty VAT returns. If you don’t wish to resume trading, you need to deregister for VAT within 30 days of becoming dormant.

A dormant company is governed by different rules if it is classed as dormant for corporation tax.

Dormant company for corporation tax

A company is classed as dormant for corporation tax purposes if:

• It is yet to engage in business activity or run any transactions
• it stops trading or receives no income
• it is a flat management company, also known as ‘Right to Manage’ 
• it is an unincorporated association or club that owes less than £100 corporation tax

If your contractor limited company is classed as ‘small’ and ‘dormant’ by Companies House, you can file ‘dormant accounts’ which is an abbreviated set of company accounts.

If your company is no longer dormant, you don’t need to inform Companies House as your next set of accounts will show that your business is active.

How to pay less accountancy fees, restart a dormant or non-trading company

If you wish to restart a dormant or non-trading limited company, inform HMRC by registering for corporation tax, submitting company accounts, paying corporation tax, and sending your company tax return to HMRC.

Finally, be aware that as the company director of a dormant or non-trading company, the information that you report to HMRC and Companies House will vary to that of an active company. 

As such, this can be good news because being the director of either will trim the workload of your accountant, and therefore your accountancy fees too!