A company does not have to be formally closed to become dormant for Corporation Tax. A company is usually considered dormant if it has stopped trading and has no other income, such as investment income.
A new limited company that has not yet started trading can also be dormant for Corporation Tax. Other examples include certain flat management companies and unincorporated associations or clubs owing less than £100 in Corporation Tax.
It is important to understand what counts as trading. For this purpose, activities can include buying or selling, renting property, advertising, employing someone or receiving interest. A company therefore needs to consider its activities carefully before assuming that it is dormant.
If a company has stopped trading and has no other income, it can tell HMRC that it is dormant for Corporation Tax. If HMRC has already issued a notice to deliver a Company Tax Return, the company must still file a return showing that it is dormant for the relevant period.
Once HMRC has been told that a limited company is dormant, it generally does not have to pay Corporation Tax or file further Company Tax Returns unless HMRC issues another notice.
Being dormant for Corporation Tax does not remove the company's Companies House obligations. A limited company must still file its annual accounts and confirmation statement.
If the company is VAT registered and does not intend to trade again, it must deregister for VAT within 30 days of becoming dormant. If it plans to restart trading, it must continue submitting nil VAT returns.
Dormant status should therefore be reviewed carefully, particularly when a company stops trading but continues to have financial activity.
