How to keep a company dormant

Starting and maintaining a business can be a rollercoaster, but what happens if you’re not ready to fully launch your company or decide to put it on hold for a while? In the UK, a company can be classified as dormant – essentially, it’s a business that is not active or trading, but still exists legally. It might sound a little strange, but maintaining a dormant company is a legitimate choice for some business owners.

In this post, we’ll walk you through how to keep a company dormant, what that status means, and most importantly, what you need to watch out for that could cause your company to lose its dormant status.

What is a dormant company?

A dormant company is one that hasn’t been doing any significant business activity for a certain period, typically 12 months or more. The company might still exist legally and retain its registration with Companies House, but it doesn’t engage in any trade, generate income, or have any significant financial activities (like buying or selling things).

Think of it like a sleeping bear – the company is still there, but it’s not doing anything. It’s a good option for someone who may want to hold on to their business name, or for a company that has been set up but is not quite ready to operate yet.

Why keep a company dormant?

There are several reasons why you might choose to keep a company dormant:

• Holding a Company Name: If you like your company name and want to save it for future use, keeping the company dormant is one way to do that.

• For Future Plans: Perhaps you’ve started a business but need to pause operations for a while. Keeping it dormant means you can revive it without needing to re-register.

• Financial Simplicity: Dormant companies are often simpler to manage since they don’t require filing annual accounts that reflect trading activity.

• Avoid Striking Off: If a company doesn’t file necessary paperwork, it could be struck off by Companies House, which means you lose the name and your registration.

How to keep a company dormant

To keep your company dormant, there are a few key things you need to follow:

1. Avoid Trading: The most important thing to remember is that the company should not be involved in any trade. No selling goods or services, no carrying on business activities. It should be completely inactive.

2. Don’t Have Any Income: A dormant company cannot receive any form of income. This means no invoices, no payments, no transactions that might be considered business income.

3. Don’t Buy or Sell Anything: Your dormant company shouldn’t be buying or selling assets, property, or inventory. Any kind of financial transactions, including paying bills, can cause the company to lose its dormant status.

4. Minimal Financial Activity: There are some exceptions to the rule. For example, if the company earns interest on its bank account, that doesn’t necessarily affect its dormant status. However, if the company has significant financial activity (like paying bills or taking loans), it will no longer be considered dormant.

5. File Annual Confirmation Statements: Even though your company isn’t trading, you still need to file an annual confirmation statement (previously called an annual return) with Companies House. This is just to confirm that the company is still in existence and hasn’t had any trading activity.

6. File Dormant Company Accounts: While dormant companies don’t need to submit full financial accounts like active businesses, you’ll still need to file dormant accounts every year with Companies House. This is a simpler process, and it involves submitting a basic form that confirms the company has had no transactions.

What causes a company to lose its dormant status?

It’s easy to think that a dormant company is just a matter of "doing nothing," but there are a few activities that can cause your dormant status to slip away faster than you can say “tax return.” Let’s look at what could make your company lose its dormant status:

1. Engaging in Trading: If your company starts trading – for example, if it begins selling goods or services, or enters into contracts – it will no longer be considered dormant. Even making a few sales or issuing invoices could mean the company needs to start filing regular accounts.

2. Carrying Out Business Activities: Anything that looks like the company is doing business – like purchasing assets or starting contracts with suppliers – will turn your dormant status into an active one. Even if you’re not making a sale, a business activity (like hiring employees or running a website) will count.

3. Receiving Income: If the company receives money, whether it’s from a customer or an investment, that’s a sign that the company is active, which means it can’t remain dormant. Even interest on savings could push the company into non-dormant status, especially if it’s more than trivial.

4. Paying Bills: You can’t have regular expenses associated with the company and still claim that it’s dormant. This includes paying for things like insurance, rent, or other recurring business costs.

5. Loans and Financial Transactions: Taking out loans or engaging in any kind of financial transaction (such as issuing shares or capital increases) can cause your company to lose its dormant status. Even minor changes in the company’s financials can push it back into the active realm.

6. Activity by Directors: Sometimes, activity carried out by the company’s directors or shareholders could cause the company to lose its dormant status. If, for example, the directors use the company’s bank account for personal purposes, this can result in the company being classified as non-dormant.

   
   

What happens if a company loses its dormant status?

If your company loses its dormant status, it will need to start filing full annual accounts and dealing with the usual legal requirements for an active business. That includes:

• Preparing detailed accounts for Companies House

• Paying corporation tax if there’s any taxable income

• Potentially changing the registration with HMRC

However, don’t panic! The process is straightforward, and in some cases, a company can return to dormant status if it stops trading again, provided the proper procedures are followed.

Is it worth keeping a company dormant?

For many entrepreneurs, a dormant company is a smart way to pause an idea or business venture temporarily while keeping the option open for future use. It’s a relatively low-maintenance process, provided the rules are followed closely, and it’s a great way to hold onto a business name or registration.

However, if your company is truly finished and you don’t plan to use it in the future, you might want to consider voluntarily closing the company (also known as "striking off"). This would prevent any further filing requirements and free you from any potential administrative headaches.

Final thoughts

Keeping a company dormant is like keeping a plant in the shade – you’re not nurturing it right now, but it’s still there, ready to grow when you are. As long as you stay on top of the requirements and avoid accidentally activating your company by engaging in business activities, you can keep things quiet and low-cost.

The key is to make sure your company doesn’t start engaging in transactions that look like business activity. Keep your records clean, file the necessary paperwork, and your company can stay dormant for as long as you need.

In the meantime, if you need to file dormant accounts - get started with our simple online software here.