Dormant companies: inactive does not mean obligation-free

Companies House and HMRC use different tests

For Companies House, dormancy depends on whether there have been significant accounting transactions. These are transactions that should be entered in the company’s accounting records, subject to specific exclusions. Certain payments, such as initial subscriber shares and specified Companies House fees, do not count.

HMRC’s dormant status concerns activity and income for Corporation Tax purposes. A company can be dormant for one purpose but need different treatment for another. Read both sets of guidance rather than relying on an informal description that the business has not launched.

Watch small transactions as well as sales

Bank interest, bank charges and operating costs can matter even if the company has no customer revenue. Paying for a website or software through the company may undermine a simple assumption that it has had no transactions.

Do not try to create dormancy by ignoring transactions or moving them out of the records. Ask an accountant how the actual activity should be treated and whether dormant accounts are appropriate for the period.

Dormant companies still need a compliance calendar

A dormant company normally files annual accounts and a confirmation statement with Companies House. It must also keep company details accurate and comply with applicable director and PSC identity verification requirements.

If HMRC has issued a notice to file a Company Tax Return, do not ignore it. Tell HMRC about the dormant position through the relevant process and confirm what is required. A dormant-company notification is not a substitute for checking an outstanding notice.

When the company starts trading

Record when business activity begins and notify or register with HMRC as appropriate. Set up bookkeeping and check VAT or payroll requirements. Dormant filing treatment does not carry forward automatically once significant transactions occur.

Consider contracts, address services, accounts and insurance before launch. If you formed the company to reserve a name, re-check whether the intended branding and activity still fit; incorporation alone does not provide trade mark clearance.

Keep dormant or close the company?

Keeping a company dormant can make sense where you expect to use it, but it still takes attention and may have fees or service renewals. If there is no realistic future use, consider the official closure guidance rather than leaving filings unattended.

Strike-off has eligibility and notification requirements, and is not suitable as a way to avoid debts. If the company has assets or liabilities, take advice before deciding. A company being dissolved can have serious consequences for remaining assets.

Worth knowing: Dormant is a defined accounting or tax status, not a casual synonym for “nothing much happened”.

Test the transactions before calling the company dormant

An illustrative company registered to hold a name issues its initial shares and pays the permitted Companies House filing charges, but makes no sales and has no other significant transactions. It may fit Companies House dormancy, subject to the precise rules. Now add bank interest, a subscription or a trading payment: those entries may alter the analysis. Review the official exceptions rather than relying on “we have not invoiced anyone”.

HMRC dormancy is a separate tax status. A company may not yet have started business, or may have stopped business, but needs to deal properly with HMRC’s records and any notice to deliver a return. Do not ignore an issued tax-return notice merely because the directors regard the company as dormant.

Be particularly careful with bank-linked formation offers. An account, referral qualification or savings product can create transactions or income inconsistent with a planned dormant structure. Evaluate the effect before carrying out qualifying spend or depositing money to pursue a promotion.

Dormancy needs maintenance and a deliberate restart process

A dormant company generally still needs accounts and a confirmation statement at Companies House, along with an appropriate registered office and maintained register details. Identity-verification obligations do not disappear solely because trading has not started. Keep the official email and post monitored.

Before restarting, note the actual business-activity date, inform HMRC as required and prepare a bookkeeping opening position. Reassess banking, VAT, payroll, insurance and any licences. Dormant accounts for an earlier period do not cover the new trading period.

If you no longer need the company, compare keeping it compliant with properly closing it. Simply ceasing subscriptions or abandoning the address can lead to missed notices and enforcement. Dormancy is a status within an ongoing legal entity, not an informal pause button for every obligation.

Dormancy vs. Dissolution: A Strategic Comparison

Choosing between making a company dormant and dissolving it entirely is a critical strategic decision. Dormancy is effectively a 'pause' button. It preserves the company as a legal entity, retaining its registered name, trading history, and company number. This is the ideal route if there is a reasonable prospect of resuming business in the future, wanting to protect a brand name, or needing to hold a specific asset like intellectual property. The company continues to exist, but with minimal activity and reduced compliance obligations. It can be reactivated relatively quickly when the time is right, providing a seamless transition back to trading.

Dissolution, also known as striking off, is the terminal process of closing a company. It is a permanent 'stop' button. This option is suitable when directors are certain the company will never be used again. The process involves settling all debts, distributing any remaining assets to shareholders, and formally applying to Companies House to have the company removed from the register. Once dissolved, the company ceases to exist, and its name becomes available for others to register. Reversing a dissolution is a complex, expensive, and court-driven process known as 'administrative restoration', making it a path to choose only with complete certainty.

Worth knowing: Opt for dormancy to pause a business you may reuse, but choose dissolution for a permanent and final closure.

Step-by-Step: Notifying HMRC of Dormancy for Corporation Tax

Informing Companies House that your company is dormant by filing dormant accounts is only half the job. You must also separately notify HM Revenue and Customs (HMRC) to avoid receiving Corporation Tax notices, demands for CT600 returns, and eventual penalties for non-filing. This is a crucial step that many directors overlook. HMRC and Companies House have different definitions of 'dormant' and do not automatically share this specific status information. For HMRC, a company is dormant if it is not trading, receiving any form of taxable income, or otherwise active for Corporation Tax purposes.

Before contacting HMRC, you must ensure all liabilities are settled. This includes paying any final Corporation Tax from when the company was trading, along with any outstanding PAYE or VAT obligations. If the company has never traded, the process is simpler as there are no past liabilities to clear. You can notify HMRC either online via the company's Government Gateway account or by post. It is vital to state the exact date from which the company became dormant. This is typically the day after its last trading transaction. Once notified, HMRC will update its records and stop issuing notices to file a Company Tax Return.

1. 1

   Confirm the company has completely ceased trading and has no sources of income (e.g. sales, investments, bank interest).

2. 2

   Pay all outstanding tax bills, including Corporation Tax, VAT, and PAYE, and file any final returns required for the trading period.

3. 3

   If you have a Government Gateway account, log in and navigate to the Corporation Tax service to find the option for declaring the company dormant.

4. 4

   Alternatively, write a letter to your company's Corporation Tax office. You can find the address on previous correspondence from HMRC.

5. 5

   In the letter, clearly state the company's full name, Company Registration Number (CRN), and 10-digit Unique Taxpayer Reference (UTR).

6. 6

   Specify the exact date the company became dormant and explicitly state that it will not have any transactions liable for Corporation Tax going forward.

7. 7

   Keep a copy of the letter for your records and await written confirmation from HMRC that they have processed your request.

Worth knowing: You must formally notify HMRC of dormancy, in addition to Companies House filings, to suspend Corporation Tax obligations.

The Cumulative Cost of Keeping a Company Dormant

While dormancy significantly reduces a company's administrative burden, it is not entirely free. There are mandatory annual costs associated with maintaining a company's legal existence on the Companies House register. The primary unavoidable expense is the annual confirmation statement filing fee, which stands at £50 for digital filing as of October 2026. This filing confirms that the company's details, such as the registered office address and officer information, are correct. Failure to file the confirmation statement can lead to prosecution of the directors and the company being forcibly struck off the register.

Beyond this statutory fee, some companies may incur other costs. If the dormant company processes any personal data (for example, a list of former clients or contacts), it may still be required to pay an annual data protection fee to the Information Commissioner's Office (ICO), typically £52 for small organisations. Many directors also choose to hire an accountant to prepare and file the dormant accounts and confirmation statement to ensure compliance and avoid errors, which represents an additional, albeit optional, cost. These recurring expenses should be weighed against the £100 one-off cost of incorporating a new company if the original one is dissolved.

Worth knowing: Based on a £50 annual confirmation statement fee, keeping a company dormant is cheaper than dissolving and re-incorporating (£100) if the inactive period is less than two years.

Director and PSC Duties: Unchanged by Dormancy

A company's dormant status does not grant its directors a holiday from their legal responsibilities. The statutory duties outlined in the Companies Act 2006 continue to apply in full. Directors must still act to promote the long-term success of the company, which in a dormant context means preserving its legal standing and any assets for potential future use. This includes exercising reasonable care, skill, and diligence in managing its affairs, however minimal they may be. Critically, this means ensuring that the company complies with its filing obligations by submitting dormant accounts and a confirmation statement to Companies House on time, every year.

Furthermore, directors and People with Significant Control (PSCs) remain personally responsible for maintaining the accuracy of the public record. Any change of a director's residential address or a PSC's details must be reported to Companies House within the statutory timeframe. Since 18 November 2025, identity verification is mandatory for all new and existing directors and PSCs, a requirement that applies equally to dormant companies. This underscores that these are active roles with continuing legal accountability. Failure to fulfil these duties can result in personal fines, prosecution, or disqualification, regardless of whether the company is trading.

• Ensure timely filing of form AA02 dormant accounts and the annual confirmation statement.
• Maintain a valid registered office address in the UK and a Single Alternative Inspection Location (SAIL) if applicable.
• Promptly notify Companies House of any changes to director, secretary, or PSC details.
• Prevent the company from entering into any 'significant accounting transactions' that would cause it to lose its dormant status.
• Safeguard any assets held by the company, such as funds in a bank account or intellectual property.
• Monitor and respond to all official correspondence from Companies House and HMRC.

Worth knowing: Directors of dormant companies retain their full statutory duties, including timely filings and reporting changes, and are liable for non-compliance.

Edge Cases: Handling Assets and Liabilities in a Dormant Company

A frequent point of confusion is whether a dormant company can hold assets. The answer is yes, provided they do not generate income that would make the company active for Corporation Tax purposes. A company can remain dormant while having cash in a bank account, particularly if it's the initial capital from subscribers. It can also own non-income-generating assets such as intellectual property (e.g., trademarks, patents), software code, or a domain name. The key distinction is between holding an asset and trading with it. Owning a domain name is acceptable; selling it for a profit is a transaction that would reactivate the company.

Liabilities can also exist on a dormant company's balance sheet. A common example is an outstanding loan owed to a director. The existence of this loan does not, by itself, breach dormancy. However, if the company were to make repayments that included interest, that interest payment could be considered a transaction that reactivates the company. All assets and liabilities must be correctly declared on the balance sheet of the dormant company accounts (Form AA02). Even though there is no profit and loss account, the balance sheet must still present a true and fair view of the company's financial position at the year-end.

• **Permitted Assets:** Cash at bank from share subscriptions, registered trademarks, patents, domain names, freehold property with no rental income, loans made to a group company (if no interest is received).
• **Assets That Breach Dormancy:** A property that is rented out, a bank account generating notable interest, an investment portfolio yielding dividends, any stock intended for sale.
• **Permitted Transactions:** Payment for shares issued on incorporation, paying the Companies House confirmation statement fee, paying a late filing penalty to Companies House.
• **Transactions That Breach Dormancy:** Purchasing goods or services (e.g., web hosting, marketing), paying salaries or dividends, selling an asset for gain, receiving payment for a service.

Worth knowing: A dormant company can hold non-income-generating assets and have liabilities, but these must be correctly reported on the balance sheet.

Avoiding Common and Costly Dormancy Filing Errors

The simplified compliance for dormant companies can create a false sense of security, leading to common yet avoidable errors. The most frequent mistake is assuming that filing dormant accounts with Companies House automatically informs HMRC. This is not the case. Without a separate, direct notification to HMRC, their systems will still expect a Corporation Tax return (CT600). This leads to automated penalty notices for non-filing, creating unnecessary stress and administration for directors. The solution is to always communicate dormancy status to both bodies independently.

Another critical error is misinterpreting the rules for an entire accounting period. A company can only file dormant accounts if it has been dormant for its *full* financial year. If it trades for a single day and is then dormant for the remaining 364 days, it must still file full statutory accounts for that year. Directors often mistakenly file dormant accounts in this scenario, which is a breach of the Companies Act. Similarly, paying for a business-related service, like a professional subscription or domain name renewal, from the company account constitutes a 'significant accounting transaction' and breaks dormancy, again invalidating the use of dormant accounts.

1. 1

   Before starting, verify the exact financial year start and end dates on the Companies House register.

2. 2

   Thoroughly review all company bank statements for the full accounting period to confirm there have been zero significant transactions.

3. 3

   Select and complete the correct form for Companies House, which is Form AA02 'Dormant Company Accounts', not a standard accounts template.

4. 4

   Lodge the dormant accounts with Companies House and, in parallel, write to HMRC to declare the company dormant for Corporation Tax from the correct date.

5. 5

   Set calendar reminders for your filing deadlines: 9 months after the financial year-end for accounts and annually for the confirmation statement.

6. 6

   If in any doubt about a transaction, seek professional advice before filing, as correcting a submission is more complex than filing it correctly first time.

Worth knowing: To avoid penalties, always notify both Companies House and HMRC of dormancy, and ensure the company was dormant for the entire financial year before filing.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Dormant company overview
• GOV.UK: Dormant for Companies House
• GOV.UK: Dormant for Corporation Tax

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.