When is a company dormant for tax purposes?

If a company has ceased operations and has no other source of income, it is usually classified as dormant for Corporation Tax purposes.

For the purposes of corporation tax, a company is considered dormant 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 club owing less than £100 Corporation Tax
• is a flat management company

HMRC can also send a notification if they think a company is dormant. This notice will state that a company or association is dormant and is not required to pay Corporation Tax or file Company Tax Returns.

Even if a limited company is dormant, it must still file annual accounts and a confirmation statement with Corporation Tax and Companies House. A company defined as ‘small’ by Companies House can instead file ‘dormant accounts’ and doesn’t have to include an auditor’s report.

A dormant company must also deregister for VAT and close any unused PAYE schemes within 30 days of becoming dormant. A company can stay dormant indefinitely, however, there are costs associated with this option. This might usually be done if, for example, a company is restructuring its operations or wants to retain use of a company name, brand, or trademark.