Introduction
If your company is dormant, you do not need to fill out a Company Tax Return (Form CT600) for Corporation Tax unless HMRC asks you to. Generally, companies are exempt from Corporation Tax if they have ceased trading activity and have no income from alternative sources, such as interest or dividends. While you don’t need to make additional filings to HMRC as a dormant company, you still need to file annual dormant accounts with Companies House. This guide explains when and why dormant companies may have to file Company Tax Returns and what information they must provide to HMRC.
Key Takeaways
- Dormant companies don’t usually need to file a Company Tax Return.
- You must notify HMRC that your company is dormant to stop future tax return requests.
- If your company is dormant, you must still file dormant accounts and confirmation statements with Companies House.
- If your dormant company resumes trading, you must inform HMRC within 3 months.
- Never ignore a letter from HMRC, even if your company is dormant, as you still may receive penalties.
Understanding dormant company tax obligations
A dormant company does not need to file a Company Tax Return (CT600) if HMRC has been informed and the business meets the dormancy criteria for Corporation Tax purposes.
In some cases, HMRC will request a Company Tax Return, even if your business qualifies as dormant. HMRC will only do this if you have not informed them about your company’s dormancy status.
If HMRC knows your company is dormant, you will not receive a notice to complete a tax return.
Navigating the rules around dormant companies can be complex, especially with different requirements from HMRC and Companies House. Read on for a clear breakdown of when tax returns are required, how to notify HMRC of your company's dormant status, and what steps you must take to stay fully compliant.
How do I know if my company is dormant?
A company becomes dormant once business has come to a halt, specifically when trading has ceased, and there is no other income from alternative sources, such as investments or dividends. As such, HMRC and Companies House require you to notify them as soon as this occurs.
There are many reasons that a company might become dormant, such as:
- Falling sales
- Loss of custom
- Excessive debt
- Rising operating costs
- Economic shock
Rather than folding completely, registering a company as dormant means that you can still retain the legal identity of the business should you wish to resume operations in the future.
What does ‘dormant’ mean for tax?
HMRC defines a dormant company as one that:
- Has stopped trading and has no other income from alternative sources like dividends, investments, or interest
- Is a new limited company that has not yet started trading
- Is an unincorporated association of a club that owes less than £100 for Corporation Tax
- Is a flat management company
HMRC also keeps detailed guidelines for determining what constitutes an active company, liable for carrying out a Company Tax Return. Generally, a company is active if it is:
- Carrying on a business activity such as a trade or professional activity, including renting property, advertising, or employing individuals
- Buying and selling goods with a view to making a profit or surplus
- Providing services
- Earning interest
- Managing investments
- Receiving any other income
If your business does not meet any of the previous criteria, then it is dormant for tax purposes. You won’t have to fill out a Company Tax Return, provided you have informed HMRC about its status.
Dormancy for HMRC vs Companies House
Dormancy is assessed differently by HMRC and Companies House, and you will have to follow separate sets of rules to comply with both.
| Dormancy for HMRC | Dormancy for Companies House | |
|---|---|---|
| Dormancy definition | No trading and no taxable income, including interest, royalties, rent, etc. | No “significant accounting transactions” during the financial year |
| Can the company have a bank account? | Yes, but you cannot accrue interest | Yes |
| Allowable transactions | None that make profit from taxable income | Limited transactions allowed, like Companies House filing fees or share allotments on incorporation |
| Is a Company Tax Return required? | No Company Tax Return required, unless requested by HMRC | Not relevant |
| Do any accounts need to be filed? | None with HMRC while dormant | Dormant accounts must be filed annually |
| What documents do you need to send? | None in most cases | Dormant accounts and confirmation statements |
| Who must be notified? | Notify HMRC if your company becomes dormant | No notification required. You only need to file dormant accounts |
| What happens if activity restarts? | Notify HMRC within 3 months of reactivity | You must prepare fully active annual accounts instead of dormant accounts |
When to notify HMRC that your company is dormant
When your company becomes dormant, you must let HMRC know straight away. Otherwise, they will continue to send you Company Tax Returns for you to file.
You must notify HMRC if:
- Your company is newly incorporated and not yet engaging in trade
- Your trading company stops all activity and becomes dormant
You must tell HMRC within 3 months of starting your tax accounting period if your company qualifies for corporation tax and is now active.
Annual accounts for dormant companies
Even if you have successfully filed for dormancy with HMRC, you still have filing obligations to Companies House, including:
- Annual dormant statutory accounts
- Annual confirmation statements
If you do not perform these legal obligations, you may face consequences such as financial penalties or having your company’s name struck off the Companies House register.
How to notify HMRC (step-by-step)
Here is how to notify HMRC that your company is dormant.
1. Wait for your UTR (if a newly incorporated company)
After you have created your new company and incorporated it, HMRC will send you your Unique Taxpayer Reference (UTR). This is a 10-digit tax code, e.g. 12345 67890. You will need this code for HMRC to identify your company and confirm its dormant status.
2. Contact HMRC
Next, you need to tell HMRC that your company is dormant. You can do this through HMRC’s online portal, by phoning them on 0300 200 3410 (if within the UK), or by post.
3. Confirm dormancy
When you contact HMRC, you will need to provide them with:
- Your company’s name
- Your UTR
- The date when it became dormant
You will also need to confirm with them that there is no trading or taxable income.
4. Receive confirmation
After contacting HMRC and declaring your company is dormant, you'll receive confirmation of this new status. As such, you can be confident you don’t have to process any more Company Tax Returns.
What to do if you’ve received a tax return request as a dormant company
HMRC may send you a notice to complete a Company Tax Return even if your company is dormant. They may do this because they haven’t been made aware that your company is dormant.
Even if you have already confirmed with HMRC that your company is dormant, do not ignore these communications. Instead:
- Contact HMRC immediately
- Explain that the company is dormant
- Request for the notice to be formally withdrawn
If HMRC persists, you may need to fill out a ‘nil to pay’ form, which reconfirms your company’s dormant status and that there is no tax due.
Typical situations requiring dormant status
Below is a selection of common scenarios of companies and the contexts that require them to file for dormancy.
1. A newly incorporated company that hasn’t traded
This is one of the most common scenarios that companies encounter when they need to file for dormancy. New businesses that have registered with Companies House and HMRC but have not started trading yet do not need to pay any tax.
So, if your company:
- Has just been set up
- Has not started trading yet
- Has no income
Then:
- You should notify HMRC that your company is dormant
- No Company Tax Return is required
- You must file your dormant accounts with Companies House
This is a common scenario for startups that register early to organise their business but delay trading until an appropriate time.
2. A trading company that has ceased operations
This is the second most common reason for companies becoming dormant. For whatever reason, your business may have ceased activities. If you want to keep its legal identity, you can claim it dormant.
If your company has ceased all trading activity:
- Inform HMRC of the exact date that trading stopped
- Ensure the business further receives no income
- File the final Company Tax Return covering the most recent trading period
Once these steps have been performed, your company will be officially dormant until activity resumes.
3. A company holding only assets
Even if your company has ceased trading, it may still generate profits from the assets it owns. For instance, your business may generate income through rent, receiving royalties, or payments from interest or dividends. Therefore, even if it has ceased its trading activity, it is still receiving income that must be declared to HMRC.
Therefore, in these cases:
- A Company Tax Return is required because the company is not dormant for tax purposes
- Dormant accounts may not be appropriate
Assets can encompass a wide range of items, from intellectual property to physical property. Consider seeking professional advice to help identify assets which provide income for your business.
What happens when your dormant company resumes trading?
As soon as your company begins trading once again or making income, it becomes liable for Corporation Tax again. When this happens, you must:
- Notify HMRC within 3 months of the activity restarting
- Re-register for Corporation Tax (if you haven’t already)
If you fail to notify HMRC within the specified timeframe, penalties may be incurred, even if the profit margins are small.
If you need any more help or guidance on understanding dormancy as a company owner or director, get in contact with 1st Formations.
Nicholas Campion
Nicholas is Director, Company Secretarial at 1st Formations, responsible for completing the company’s statutory filings and ensuring all the company secretarial department is fully trained on company law and company secretarial procedures. Nick is also Company Secretary for the BSQ Group and all subsidiary brands, an accredited industry leader and a Companies Act 2006 specialist.
