Maintaining compliance with dormant company accounts: A guide for UK businesses

By John Carpenter, Director, QCF

Many businesses in the UK choose the limited company structure, offering advantages like limited liability and a distinct legal identity. However, not all companies actively trade. Dormant companies – those not engaging in any trading activities or significant accounting transactions – still need to complete certain compliance procedures to maintain their status and avoid penalties.

This comprehensive guide explores the key aspects of maintaining compliance with dormant company accounts, ensuring your company remains in good standing with Companies House.

The nuances of Dormant Company Status

Understanding the intricacies of dormant company status is crucial. Companies House, who are the UK’s registrar of companies, classifies a dormant company as a company that does not generate income or incur expenditure beyond permissible activities. The permissible activities are as follows:

• Paying filing fees to Companies House.
• Settling penalties levied by Companies House for late filings (if applicable).
• Money received to pay for shares taken up at incorporation

Companies House makes it easier for dormant companies to fulfil their requirements under the Companies Act 2006, specifically by permitting the submission of “dormant company accounts”. It’s important to remember, however, that just because a company is dormant does not absolve it of all of its responsibilities.

Navigating the Maze of Compliance Requirements

Two primary obligations ensure a company maintains its dormant status:

1. Filing Dormant Accounts

All companies must file annual accounts with Companies House within nine months from their accounting reference date (also known as the “ARD” or “Financial Year End”). Dormant companies specifically are permitted to file “dormant company accounts”, which are significantly simpler than those for trading companies. They typically consist of a balance sheet with relevant notes explaining the company’s dormant status and minimal financial activity.

These dormant company accounts can be filed online through Companies House’s WebFiling service. This user-friendly system makes it easy to ensure all necessary information is included on submissions.

2. Filing a confirmation statement

Companies House requires all companies, including dormant ones, to file a confirmation statement annually. This filing serves multiple purposes. The first of which is to confirm changes to certain information regarding the company (such as its activities or list of shareholders). It also confirms that the company is still required and that the rest of the information submitted to the public register (for example, information relating to who the directors are) is still correct. Finally, it also confirms that all future intended activities of the company are lawful.

There is a filing fee that needs to be paid to Companies House when submitting the confirmation statement. This fee is £13, although it is due to go up to £34 on 1 May 2024.

3. Letting HMRC know

Aside from your obligations with respect to Companies House, companies will also need to let HMRC know that they are dormant for the purposes of Corporation Tax.

It should be noted that Companies House and HMRC’s definition of dormancy differs slightly, and it is possible that a company is dormant for HMRC’s purposes whilst not being dormant for Companies House’s purposes (and vice versa).

If your company is going to be dormant for Corporation Tax purposes, you should inform HMRC within 3 months of your company being incorporated. They will then update their records, which will mean you will not be required to submit an annual Corporation Tax Return.

Maintaining Dormant Status: Avoiding Unintended Activity

If at any time during a financial period, your company undertakes a significant accounting transaction (in other words, a transaction that was not one of the three we discussed above), it will no longer be eligible to submit dormant company accounts to Companies House for that period.

If a dormant company needs to engage in any activity that might jeopardise its dormant status, consulting an accountant or solicitor beforehand is highly recommended. They can advise on the potential implications and ensure the company remains compliant.

The Advantages of Maintaining Dormant Company Compliance

Maintaining compliance offers several significant benefits for companies choosing to remain dormant, including:

• Preserves limited liability: A dormant company limited by shares continues to enjoy the protection of limited liability, shielding shareholders’ personal assets from company debts.
• Protects the company name: Maintaining a dormant company allows you to retain the company name for future use. This avoids the need to re-register with a preferred name if you decide to resume trading, and it will also prevent someone else from registering and using that company name.
• Simpler re-activation: It is often quicker and easier to start to trade using a dormant company, rather than having to register a brand new company at Companies House.

The Pitfalls of Non-Compliance: Understanding the Consequences

Failing to comply with filing requirements can lead to penalties and complications, such as:

• Late filing penalties: Companies House levies escalating penalties for the late filing of accounts and confirmation statements. These penalties can become significant if left unaddressed.
• Strike off: In extreme cases of persistent non-compliance, Companies House can strike the company off the register. This dissolves the company and potentially makes it difficult to re-establish it in the future.
• Prosecution: Directors face possible prosecution if they fail to uphold their director duties or responsibilities.
• Reputational damage: Failing to complete your filing requirements on time (or at all) risks damaging your reputation as a director.

Beyond Compliance: Additional Considerations for Dormant Companies

Maintaining compliance is just one aspect of managing a dormant company effectively. Here are some additional considerations:

• Record keeping: Even though a dormant company has minimal financial activity, good record-keeping practices are essential. This includes keeping copies of all filed accounts, confirmation statements, and any company communications.
• Changes in company information: If there are any changes to the company’s directors, shareholders, or PSCs, these must be notified to Companies House promptly, even for a dormant company.

The bottom line

Maintaining a dormant company in the UK offers a convenient way to preserve a legal entity for future use, while enjoying benefits like limited liability and name protection. However, dormancy isn’t an excuse for neglecting your company’s obligations.

By following the guidance outlined in this article, you can ensure your dormant company remains compliant with Companies House, avoiding potential penalties and complications. Remember, even seemingly minor activities can inadvertently take a dormant company out of its status.

If you have any doubts or require assistance, consulting with an accountant or solicitor specialising in company law is highly recommended. With a proactive approach and a clear understanding of the requirements, you can keep your dormant company in good standing, ready for future endeavours.