A company can exist in the form of dormant because of many reasons. Technically, a newly formed company can be considered as a dormant company until it starts accounting transactions. Also, even an existing trading company can become a dormant company if it doesn’t generate accounting transactions within a certain accounting period. So, dormant is more of a status that defines in activeness of a company.
In general, a dormant company has remarkably fewer obligations before the law. For instance, dormant companies are exempted from filing corporate tax return. When a company declared to be dormant, it doesn’t require to file reports such as profit and loss or directors’ reports.
A company can still maintain its dormant status even after engaging in following types of transactions.
- Payments made to the subscribers as per MoA
The first shareholders of a company should be paid at least a nominal amount. Although it is a nominal value, the company should have such transactions recorded in its accounts. Usually, this nominal value at the dormant status will be around £1.00. Even though this is a legal transaction and reported to the Companies House, the company will still remain as a dormant.
- Companies House Fees
Even a dormant company should submit a confirmation statement annually together with a fee of £13. Although this is an accountable expenditure from the company’s perspective, the company can still remain as a dormant.
- Penalty fees paid to HMRC
Some dormant companies fail to submit necessary files to the HMRC. Eventually, the respective company will be charged a penalty fee; this should be accounted, but it doesn’t make any difference to the dormant status of the company.
Although the reason 01 is an unavoidable occurrence, a company owner should be able to handle the other two reasons smartly. A company can lose its dormant status in the event of earning an interest on a company bank account no matter how small the amount is. So, if you wish to maintain the dormant status further, you should take necessary actions to avoid earning interest or paying any bank charges from the company account.
What differentiates a dormant company from a non-trading company?
Although many people wrongfully think dormant companies and non-trading companies are same, there are significant differences between those two company types. Both the structures are not involved any trading activities but a non-trading company will have to pay rentals, legal fees, employee wages etc. as significant transactions. All these transactions are considered to be strong causes to lose dormant status. A dormant company, however, has no such significant transactions apart from the Companies House fees and potential penalties paid to the HMRC.
Making the things easier for basic dormant companies that have not started their operations since their formation, Companies House has introduced a simplified form submission system (form AA02 in particular). The filing process including the confirmation statement, however, should be handled by a third party and the fees are not subject to a reimbursement under any circumstance.