How to set up a dormant company - a guide for small businesses

If you’re looking to set up a dormant company the steps to follow are the same as if you were setting up a limited company to trade.

During the registration process for your dormant company you will need to assign a SIC code - this is the Standard Industrial Classification. The SIC code for a dormant company is 99999. This indicates to Companies House that you intend to leave this company dormant.

What SIC code should a dormant company use?

When registering a dormant company with Companies House you should use the SIC code 99999 - this indicates you are intending to leave the company dormant.

What is a dormant company?

A dormant company is simply a registered company that is currently not trading - they may have previously traded or may have been set up with no intention to trade.

What is the point of a dormant company?

Many people register a company with the intention to remain dormant to protect a chosen company name - as no other company can use that name once registered. This may be the case if you are currently a sole trader but know in the future you may wish to incorporate your business as it grows.

How long can a company remain dormant?

There is no time limit on how long a company can remain dormant - as long as you file a confirmation statement and annual accounts each year.

If you are setting up your Limited Company with the intention of it remaining dormant then we highly recommend our basic or seed package - we can provide services to file your annual accounts and confirmation statement yearly.

Do you need a bank account for a dormant company?

As a dormant company is non-trading it does not need to have a business bank account as there should be no financial transactions. You must still however file your dormant company accounts each year.

How to file dormant accounts?

A limited company is required to file annual accounts with both Companies House and the HMRC. If your company has not traded then you will need to file Dormant Accounts with Companies House rather than active ones. You will also need to file your confirmation statement and at this time you may also change the SIC code of your company to 'dormant' and this will then show on the public record.

The form you need to sumbit for dormant accounts for a company that has never traded is the AA02 form - this can be done online at gov.uk or you can fill in a paper version of the AA02.

Dormant Accounts will also need to be filed with HMRC (this is a nil return) if the company has not traded and no transactions show on the business bank account. You will need your Unique Tax Reference number (UTR), company number and authentication code.

Can a dormant company pay dividends?

Yes - technically a dormant company can pay dividends however this means that the company ceases to be dormant and therefore will be subject to the requirements of an active company.

How to make a trading company dormant

Though some companies are dormant from the start other companies may become dormant after a period of trading. When a trading company becomes dormant this reduces the need for ongoing filings (though a confirmation statement and annual accounts are still required). A company is only conisdered dormant if there is no trading activity for a full accounting period - therefore if the company only ceases trading for a number of months then it will not be classified as dormant.

Here are the steps you need to take if you wish to make an active company dormant:

1. Settle any outstanding invoices and bills and cancel any exisiting business contracts - such as leases, utilities, insurance etc.
2. Terminate any contracts with customers for which you provide goods or services - ensure accounts are settled.
3. Pay any outstanding tax bills (and VAT if applicable.)
4. Pay any wages due to employees.
5. Close any interest generating business bank accounts.

Your company will remain active in the eyes of Companies House until the first annual statement with no transactionsis filled.

You must inform HMRC of your intention on making the company dormant, they will then send a request for a final tax return up to the date in which you intend for the company to be dormant from.