In 2020, over 6 million small to medium-sized enterprises (SMEs) were operating in the UK. These SMEs make up more than 99% of all businesses in the country. They contribute significantly to the economy, accounting for 33% of employment and 21% of turnover. This highlights the crucial role SMEs play in the UK’s business landscape.
Most SMEs are actively engaged in daily trading, but there are also more than 300,000 dormant companies registered with Companies House. But what exactly is a dormant company, and why might someone choose to have one? Let’s explore this further.
What Is a Dormant Company?
A dormant company is one that has been incorporated at Companies House but isn’t currently engaged in any business activities and has no significant accounting transactions. For Corporation Tax purposes, HMRC classifies such a company as dormant or inactive.
A company can be dormant from its incorporation or after a period of trading activity. Dormant companies do not need to pay tax or file an annual corporation tax return until they resume operations. However, if a company has traded previously, it must settle any outstanding tax liabilities from that period.
A company is considered dormant for corporation tax purposes if:
- It is a flat management company.
- It is a new limited company that hasn’t started trading.
- It is not trading and has no other income.
- It is an unincorporated association or charity.
Why Choose to Have a Dormant Company?
There are several reasons why someone might choose to have a dormant company:
- To Set Up a Company for Future Use: You might have a business idea that you want to establish in advance without starting to trade immediately. A dormant company status allows you to be prepared to start trading at any time.
- To Hold an Asset: Dormant companies can hold assets like property or intellectual property, protecting these assets without engaging in trading activities.
- To Take a Break: If you need to pause your business operations, setting your company as dormant allows you to cease trading temporarily without winding up the company. This is useful if you plan to resume trading in the future or are undecided about the company’s future.
Where Can You Open a Dormant Company?
You can open a dormant company in various countries around the world. Here are a few popular jurisdictions where you can easily establish a dormant company:
- United Kingdom: The UK is a common choice for setting up dormant companies. You can register a company through Companies House and keep it dormant by ensuring it does not engage in any significant accounting transactions.
- United States: In the US, you can incorporate a company in any state and maintain its dormant status by not conducting business activities and meeting the state’s annual reporting requirements.
- Australia: In Australia, you can register a company with the Australian Securities and Investments Commission (ASIC) and keep it dormant by not trading or having significant financial transactions.
- Singapore: Dormant company in Singapore allows for the easy incorporation of companies, which can then be kept dormant. You must notify the Accounting and Corporate Regulatory Authority (ACRA) of the company’s dormant status.
- Hong Kong: In Hong Kong, you can establish a company and declare it dormant by passing a special resolution and submitting it to the Companies Registry.
- Canada: In Canada, you can incorporate a company at the federal or provincial level and maintain its dormant status by not engaging in business activities and fulfilling the necessary filing requirements.
- Ireland: Ireland is another popular location for setting up dormant companies. You can register with the Companies Registration Office (CRO) and keep the company dormant by not trading and filing annual returns as required.
Each of these jurisdictions has specific requirements and procedures for maintaining a dormant company, so it’s important to understand and comply with the local regulations.
How Do You Restart a Dormant Company?
When you’re ready to reactivate your dormant company, follow these steps:
- Contact HMRC within three months of starting any business activity or receiving income.
- If the company has never traded before, register it for Corporation Tax.
- After registering and notifying HMRC, you can change the company’s dormant status and begin trading.
Key Takeaways
Maintaining a dormant company offers various advantages, such as easing the process of filing annual returns and allowing new business owners to set up their companies at their own pace without financial pressure. It also provides the flexibility to take a break from trading if needed.
For more business advice on starting a new business or implementing new business practices, seek out additional resources and guidance.
