What Is a Dormant Company on Companies House?

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We created this webpage for people responsible for company filings and statutory records who want clear guidance on Companies House requirements without jargon. Our aim is to help you understand your obligations, avoid filing errors, and stay compliant with Companies House and HMRC.

The term dormant company comes up frequently when people set up a limited company but are not quite ready to trade, when a business has temporarily stopped operating, or when a company is being kept for future use. In my experience many directors assume dormant means inactive in every sense and therefore assume there are no ongoing obligations. That assumption often leads to missed filings and unnecessary problems.

A dormant company is a specific legal and tax concept in the UK. It has a clear definition, specific rules, and ongoing responsibilities even though no trading is taking place. In this article I want to explain in plain practical terms what a dormant company is, how Companies House and HMRC define dormancy, what you can and cannot do while dormant, what still needs to be filed, and the common misunderstandings I see time and again.

What a dormant company actually means

A dormant company is a company that has had no significant accounting transactions during a financial period.

That definition is important because dormancy is not about intention, effort, or activity in a general sense. It is about transactions.

In simple terms a company is dormant if

• It is registered at Companies House
• It exists legally
• It has not traded
• It has not received or spent money in a way that counts as significant

A company can be dormant from incorporation or become dormant after previously trading.

Companies House definition of dormancy

For Companies House purposes a company is dormant if it has had no significant accounting transactions during its accounting period.

Significant accounting transactions generally include

• Receiving income
• Paying expenses
• Buying or selling goods or services
• Paying salaries
• Paying rent or utilities

Certain limited transactions are allowed and still treated as dormant.

HMRC definition of dormancy

HMRC has a similar but separate concept of dormancy for Corporation Tax purposes.

From HMRC’s perspective a company is dormant if

• It is not trading
• It has no other taxable income

A company can be dormant for Companies House but not dormant for HMRC or vice versa depending on circumstances.

This distinction matters because different filings apply.

Common situations where companies are dormant

In practice I see dormant companies most often in the following situations

• A company has been incorporated but has not started trading yet
• A business has stopped trading but the company has not been closed
• A company is being kept for a future project
• A group company exists purely as a holding entity
• A company has finished trading but still owns an asset

Dormancy is often a temporary state rather than a permanent one.

What transactions are allowed in a dormant company

This is one of the most misunderstood areas.

A dormant company is allowed to have certain limited transactions without losing its dormant status.

These typically include

• Payment of the initial share capital
• Payment of Companies House filing fees
• Late filing penalties paid to Companies House

These are considered statutory or incidental transactions and do not count as trading activity.

What transactions break dormancy

Many transactions automatically break dormancy even if they seem minor.

Examples include

• Issuing invoices
• Receiving customer payments
• Paying for software or services
• Paying directors or employees
• Paying bank charges
• Paying insurance premiums

Once these occur the company is no longer dormant for that period.

Dormant companies and bank accounts

A dormant company can have a bank account but care is needed.

If money moves through the account beyond the very limited allowed transactions the company will no longer be dormant.

Common mistakes include

• Paying small costs without realising the impact
• Leaving a bank account open that incurs charges
• Receiving refunds or interest

Even small amounts can break dormancy.

Dormant companies and trading activity

Dormant companies must not trade.

Trading includes

• Selling goods or services
• Advertising with the intention to trade
• Entering into contracts for trading purposes

The definition of trading can be broader than expected. Preparing to trade is usually allowed. Trading itself is not.

Dormant companies and VAT

Dormant companies are not VAT registered unless there is a specific reason.

If a dormant company is VAT registered this usually indicates an error or a historical position that needs review.

VAT registration almost always implies trading activity.

Dormant companies and payroll

A dormant company cannot have employees or run payroll.

Paying a director salary even a small one breaks dormancy.

This is a common mistake where directors assume a minimal salary is allowed. It is not.

Dormant companies and dividends

Dividends can only be paid from distributable profits.

A dormant company has no profits and therefore cannot pay dividends.

If dividends are paid the company is no longer dormant.

Dormant companies and director responsibilities

Even when a company is dormant directors still have legal responsibilities.

These include

• Keeping statutory records
• Filing required documents
• Acting in the best interests of the company
• Ensuring information on the public register is accurate

Dormancy reduces activity but it does not remove responsibility.

What must be filed for a dormant company

This is where many directors are caught out.

A dormant company still has filing obligations.

Dormant accounts

Dormant companies must file dormant accounts with Companies House.

Dormant accounts are simpler than full trading accounts but they are still required.

Dormant accounts usually include

• A balance sheet
• Notes confirming dormancy
• Director approval statement

No profit and loss account is required.

Confirmation statements

Dormant companies must still file confirmation statements.

This includes confirming

• Directors
• Shareholders
• People with Significant Control
• Registered office address

Dormancy does not remove this obligation.

Corporation Tax returns

Whether a dormant company must file a Corporation Tax return depends on its status with HM Revenue and Customs.

If HMRC has been informed that the company is dormant

• No Corporation Tax return is required while it remains dormant

If HMRC has not been informed

• HMRC may still expect a return

This is why notifying HMRC of dormancy is important.

Notifying HMRC that a company is dormant

If a company stops trading you should inform HMRC.

This tells HMRC

• The date trading stopped
• That the company is dormant for Corporation Tax purposes

Once notified HMRC will usually mark the company as dormant and stop issuing Corporation Tax return notices.

What happens if HMRC is not informed

If HMRC is not told that a company is dormant

• Corporation Tax return reminders may continue
• Late filing penalties may be issued
• Unnecessary correspondence may follow

This is easily avoided with early notification.

How long a company can remain dormant

There is no time limit on how long a company can remain dormant.

A company can be dormant for

• Months
• Years
• The entire life of the company

As long as filings are made correctly dormancy can continue indefinitely.

Why companies are kept dormant rather than closed

From experience companies are often kept dormant because

• The name or structure may be useful later
• The cost of keeping it dormant is low
• There may be future plans
• The company holds an asset
• Closure is being delayed intentionally

However dormancy should be reviewed periodically rather than left indefinitely by default.

Dormant companies and assets

A company that owns assets may still be dormant depending on the nature of those assets.

For example

• Holding shares in another company may still be dormant
• Owning property usually breaks dormancy if there is income or costs

Each case needs review.

Dormant companies in groups

In group structures it is common for some companies to be dormant.

This might include

• Holding companies
• Special purpose vehicles
• Legacy entities

Each company must still meet its own filing obligations even within a group.

Common mistakes I see with dormant companies

Over the years certain errors appear repeatedly.

These include

• Assuming dormant means no filings
• Forgetting to file confirmation statements
• Paying small expenses and breaking dormancy
• Not notifying HMRC
• Leaving bank accounts open with charges
• Mixing personal and company activity

Most issues arise from misunderstanding rather than intent.

What happens if a dormant company fails to file

Failure to file dormant accounts or confirmation statements can lead to

• Late filing penalties
• Strike off action
• Directors being flagged for non compliance

Strike off can be serious because company assets may pass to the Crown.

Dormant company versus non trading company

The terms dormant and non trading are often used interchangeably but they are not the same.

A non trading company

• May not be actively trading
• May still have transactions

A dormant company

• Has no significant accounting transactions

A company can be non trading but not dormant.

Reactivating a dormant company

A dormant company can start trading again at any time.

When this happens

• HMRC must be informed
• Accounting records must be updated
• Full accounts will be required for that period

There is no formal reactivation process beyond starting to trade and updating HMRC.

Dormant companies and closing a company

Dormancy is not the same as closure.

If a company is no longer needed

• Strike off may be appropriate
• Formal liquidation may be required in some cases

Leaving a company dormant indefinitely without purpose is not always the best option.

When a dormant company is the right solution

Dormancy works well when

• Trading is delayed
• Activity is paused temporarily
• A company is held for future use
• Costs and obligations are understood

It is not a solution for avoiding compliance.

The role of professional advice

Dormant companies are simple when handled correctly but problems arise when assumptions are made.

Advice can help with

• Confirming dormant status
• Notifying HMRC correctly
• Ensuring filings are made
• Deciding whether to keep or close the company

Early advice prevents penalties and clean up work later.

Final thoughts from experience

A dormant company is not an inactive company in the everyday sense. It is a company with a very specific accounting and tax status. That status brings reduced reporting but not zero responsibility.

In my experience most dormant company problems arise because directors assume nothing needs to be done. In reality a small amount of ongoing attention is required to keep everything compliant.

If a company is genuinely dormant and filings are made on time it can sit quietly and cost very little. If it is misunderstood it can quickly become a source of fines and frustration.

Understanding what dormant really means and what it does not mean is the key to using dormancy properly rather than being caught out by it later.

You may also find our guidance on how to make a company dormant on companies house and are sole traders on companies house helpful when dealing with related Companies House tasks. For a broader overview of filings, registers, and statutory duties, you can visit our companies house hub.