Dormant company accounts: filing example and explainer

Before we look at a filing dormant company accounts, with both an example and explainer, let’s first establish the whys and wherefores, writes Matt Fryer, managing director of contractor accountancy firm Brookson.

What is dormancy?

Essentially, a company is dormant if it is not ‘doing business’ and does not have any other income such as investments.

It’s important to note that even if you consider that your company is not trading, there are still reporting obligations to Companies House and you (as the director), must continue to file the following documents each year, namely:

• Your annual accounts
• Confirmation statement
• Companies House and HMRC’s understanding of Dormant Company Accounts

Significant accounting transactions: what they are and aren’t

From a technical perspective, Companies House would consider a company ‘dormant’ if it has had no ‘significant accounting transactions’ during the accounting period.

And a ‘significant accounting transaction’ is one which the company should enter in its accounting records. However, significant transactions do not include:

• filing fees paid to Companies House
• penalties for late filing of accounts
• money paid for shares when the company was incorporated.

Providing there are no significant accounting transactions, the company qualifies for dormant status.

HMRC’s position looks like this…

Compare this with HMRC’s understanding of dormant status – ‘a company does not need to pay corporation tax or file another company tax return once they’ve told HMRC their company is dormant unless they receive a further notice to deliver a company tax return.’

HMRC should only be advised of dormancy once the accounting period’s corporation tax return has been submitted that incorporates both trading income and the start of dormancy, ensuring all taxable income is correctly reported and corporation tax paid accordingly.

Going forward, this evidences that the new corporation tax period is wholly dormant and HMRC will no longer raise a notice to deliver a company tax return.

Generally, once HMRC has been made aware of the dormant position of your company, the Revenue is unlikely to show an interest in your company, unless there are inconsistencies in prior tax returns, for example, that would invite enquiry.

Be aware, based on your circumstances you may wish to deregister for VAT and close the company PAYE scheme at this point to simplify matters. But you should take advice from your financial adviser in this respect.

Why should contractors make their company dormant?

Your circumstances may have changed, for instance, and you may be offered an attractive permanent contract or are contemplating a move abroad where using your UK-registered limited company may give rise to complex tax requirements.

Keeping your company in a dormant state is a good option if you wish to return to contracting in the short to medium term. However, if you do not envisage that you will return to contracting, then closing your limited company may be more practicable.

The two routes to submitting dormant company accounts: filing example

There are two positions to consider when it comes to filing dormant company accounts. First, if the company has never traded, and second; if the company has traded previously and you wish to retain your company indefinitely, in a dormant state. Let’s take each of these in turn:

1) Form AA02, Dormant company accounts Form

If you have never traded, you can complete a Companies House form, AA02, Dormant company accounts (DCA). But if you have traded, then dormant accounts must be prepared.

2) Dormant company accounts

If the company has traded previously, then you can submit dormant accounts. Technically, full accounts should be prepared for all shareholders, but for small companies, when submitting to Companies House, the director’s report and profit and loss account is excluded.

What should unaudited dormant company accounts contain?

Unaudited dormant accounts are much simpler than accounts for a trading company, but must contain:

• A balance sheet containing statements above the director’s signature and their printed name to the effect that ‘the company was dormant throughout the accounting period.
• Any previous year’s figures for comparison -- even though there are no items of income or expenditure for the current year.
• Certain notes to the balance sheet.
• If you are submitting dormant accounts on paper, the company is also obliged to confirm it was entitled to an audit, that members have not required an audit, and the directors acknowledge their requirements with respect to accounting records and preparation of accounts. As a small company, you will also need to add that ‘The accounts are prepared in accordance with the Small Companies’ regime.’

'Make sure you file dormant company accounts on time,' and other final top tips

It’s important to recognise your Companies House filing requirements still exist, even if you are not currently trading and by not filing dormant company accounts on time, late filing penalties continue to be levied.

If you don’t submit your confirmation statement on time, ultimately there is a risk that your company may also be struck off. If you are considering keeping your company in a dormant status, we would advise that you liaise with your accountant to keep up with company requirements -- in particular, if at any point you decide to recommence trading in the future.