For Corporation Tax purposes a company is usually dormant if it has stopped trading and has no other income.
A company is usually dormant for Corporation Tax if it:
- has stopped trading and has no other income, for example investments
- is a new limited company that hasn’t started trading
- is an unincorporated association or charity owing less than £100 Corporation Tax
- is a flat management company
A company will not be considered dormant for corporation tax purposes if it is carrying on any business activity, including the buying, and selling of goods or providing of services; earning interest; managing investments or otherwise receiving income
If HMRC think a company is dormant then they can send a notification. This will state that the company is dormant, and it is not required to pay Corporation Tax or file tax returns.
Even if a limited company is dormant, they will still be required to file annual accounts and confirmation statement. If a company is defined as ‘small’ by companies house it can file ‘dormant accounts’ and it doesn’t have to include an auditor’s report.
A company has 30 days from becoming dormant to deregister for VAT and close any unused PAYE schemes. Whilst a company can stay dormant forever there are cost associated with doing so. It is usually done for example when a company is restructuring its operations, or wants to hold onto the company name, brand or trademark.