Dormant Limited Company – everything you need to know
Dormant Companies: What Contractors and Freelancers with a UK Limited Company Need to Know
When you’re running your limited company, there may be times when you’re not trading but want to keep your company active, or you may set one up but decide not to trade right away. In both instances, you’d place your company into a dormant state.
So what is it, how does it work, and how can Aardvark Accounting help you? In this blog, we answer all these questions and more, to help you understand your options with dormancy.
What does ‘dormant’ mean?
A dormant company is one that has had no significant accounting transactions during a financial year. For contractors and freelancers, this usually means you have ceased trading, are no longer issuing invoices, incurring regular expenses, or receiving payments, or you have set up a company but haven’t yet started trading.
However, it’s crucial to understand that simply stopping trading does not allow you to file Dormant Company Accounts (DCA) if your company has ever traded in the past. The only time you can file DCA with Companies House is if the company has never traded since incorporation. Once a company has traded historically, even if there are little to no current transactions, you must continue to file a full set of statutory accounts every year.
You will also need to continue submitting an annual Confirmation Statement regardless of your trading status. This is a legal requirement and confirms the details of your company (e.g., directors, registered office, shareholders).
Why would you consider making your Limited Company dormant?
Putting your company into a dormant state can be a strategic move, depending on your business goals and circumstances. Here are some common reasons contractors and freelancers might choose dormancy:
- Taking a break from trading – You might pause operations due to a sabbatical, maternity/paternity leave, or a downturn in the market. By making your company dormant, you can keep the structure without fully closing it down.
- Protecting your business name and costs – Registering a company and then making it dormant is a common tactic to reserve a company name or protect intellectual property for future use.
- Preparing for a future venture – You may set up a company and put it into a dormant state so you’re ready to hit the ground running when your next project or investment starts.
- Restructuring or selling parts of a business – If your company is undergoing internal reorganisation, winding down, or preparing to sell assets or shares, dormancy can keep it legally alive without active trading.
- Avoiding dissolution – Closing a company is final, whereas dormancy keeps it on the register and easily reactivated, making it a flexible option if you’re unsure of future plans.
HMRC Filings: Still Necessary?
If your company is no longer trading, you can inform HMRC by notifying your local Corporation Tax office that the company is dormant. There are a couple of ways you can do this:
- Send a letter to HMRC
- Update your company’s status via your online Corporation Tax account
- Call HMRC’s Corporation Tax helpline directly
HMRC may then issue a “Notice to deliver a Company Tax Return” exemption for that period. However, you may still choose to file with HMRC, especially if:
- You have allowable expenses (e.g. accounting fees, bank charges, or software subscriptions) that result in a loss.
- You want to ensure those losses are carried forward to offset against future profits if the company resumes trading.
Filing even when dormant can be a proactive move to preserve tax efficiency in the long run.
VAT and PAYE: Reducing Compliance Burdens
If your company is no longer trading:
- VAT: If you are VAT-registered but no longer making taxable supplies, consider de-registering from VAT to stop quarterly VAT returns and simplify compliance.
- PAYE: If you have no employees (including yourself as a director), you can close your PAYE scheme with HMRC to remove the need for monthly RTI filings.
Taking these steps can significantly reduce the admin involved in keeping a non-trading or dormant company compliant.
What expenses might still be allowable?
Even when your company is dormant, there may be minimal ongoing costs that could be considered allowable business expenses, such as:
- Annual accountancy fees
- Bank charges on the company account
- Registered office service or mail handling
- Software subscriptions used to maintain records (e.g., accounting software)
These costs, if genuinely incurred for the business, may contribute to a trading loss that can be carried forward.
In Summary
Whether you are a contractor or freelancer who has decided to cease trading, or you’ve set up a company but haven’t yet started trading, it’s important to:
- Understand that if your company has ever traded, you must continue to file full statutory accounts with Companies House each year; Dormant Company Accounts can only be filed if the company has never traded.
- Continue to file a Confirmation Statement annually.
- Consider whether filing with HMRC might be beneficial for loss relief purposes.
- Evaluate whether it’s worth de-registering from VAT or closing the PAYE scheme.
- Keep track of any allowable expenses, even while dormant.
Taking a few proactive steps now can help you keep your company compliant, reduce unnecessary filings, and keep your options open for the future. If in doubt, it’s always wise to speak with your Client Director to ensure you’re meeting your obligations while minimising overheads.
How Aardvark Accounting Can Help
Our Client Directors are on hand to help guide you through any stage of running your Limited Company. If you have specific questions about the process or simply want to understand it more, get in touch with your Client Director today.
Note: All the information and advice in this blog post was correct at the time of writing.
