Contractors' Questions: How do I file dormant company accounts?

Contractor’s Question: I’m not sure if I’ve got what it takes to do it by myself, unaided, but if I could do, or should do because it’s better, how do I file dormant company accounts? Assuming dormancy is the way I do actually go -- in the end, by which I mean next month!

Expert’s Answer: If it’s the emotion of it all that’s getting in the way of you feeling up to the filing, be aware that you’re not alone!

In fact, it is common for limited companies to be put on ‘pause’ while their owners temporarily switch to alternative operating structures, perhaps to operate more efficiently or to net higher take-home pay.

Due to reform of IR35 next month, end-users may start to engage differently, both with individuals operating as a limited company and with individuals operating through an umbrella company. As a result, you and other contractors may decide to straddle between the two structures. But if your limited company is likely to be out of use for the accounting year, it would indeed be appropriate to make it dormant.

Dormant company: refresher

An inactive business that has ceased trading but remains on the Companies House register is understood to be a ‘dormant’ limited company by HM Revenue & Customs (HMRC) for corporation tax purposes.

For a business to be dormant, there must be no transactions in and out of the business, including income. A business is typically made dormant if there is currently no practical use for it. If the company director wishes to restart company operations in the future, they may take this route which is the ideal ‘middle ground’ between actively trading and closing shop.

For a company to be dormant, no significant transactions must be made during the accounting period. According to HMRC, “trading” refers to “buying, selling, renting property, advertising, employing someone or getting interest.” This also includes the likes of bank charges and investment income. If your business is newly incorporated, however, it is yet to start trading, it will be classed as dormant.

If your business is dormant and therefore has no corporation tax payment to make for an accounting period, you will need to notify HMRC by submitting a ‘No Corporation Tax Payment Due’ form.

Does my dormant company need a bank account?

As a dormant limited company cannot partake in or receive transactions, it is wise to close any business bank accounts that may earn interest.

If the dormant business is involved in significant transactions, whether this may be interest, or a refund, a full set of accounts will need to be prepared and submitted, breaking your business out of dormancy.

Who can file dormant accounts?

You can continue your relationship with your accountant by winding down your accounting service to a ‘dormant company accounts service’ only.

You will typically pay a reduced fee to your accountant to file a set of dormant company accounts. The average cost to file accounts and a corporation tax return for a dormant company is around the £50-mark. 

Your company accounts will be due nine months after the company’s year-end and your corporation tax return will be due 12 months following the accounting period it covers. In addition to this, you will need to file an annual return (or Confirmation Statement) which is due on the anniversary of the incorporation date, and then one year after the previous return was filed.

Take care though. If you file this late, you could face late filing penalties. Failure to submit confirmation statements, annual returns or accounts is a criminal offence and could result in steps to be taken to strike off your company. 

What information is required when filing dormant company accounts?

When filing a set of dormant company accounts, your accountant will require shareholder information, such as the number of shares in the business for the existing and previous year. The total of capital reserves will also need to be recorded and the accounts will then be submitted to HMRC.

Finally, keep in mind that while the dormancy route is typically taken by directors looking to continue operations down the line, if you are unlikely to resume operations, you may wish to close your company to cut out this cost. If you are unsure as to whether a business is dormant, this will be recorded on the Companies House register under company status. If you are biding your time to gauge if your business can be put to good use, dormancy can provide the ideal halfway house. Good luck!

The expert was David Tattersall, head of client services at Handpicked Accountants, which connects businesses with local accountancy firms.