Dormant Companies: what Contractors and freelancers with a UK Limited Company need to know

If you have a Limited Company you may find there are times when you’re not trading but you want to keep your company active, or you may decide to set a company up but not trade straight away. In both cases you’d put your company into a dormant state.

But what is a dormant state, how does it work, and how can SG Accounting help? In this blog we take a closer look at dormant companies, to help you understand your options when it comes to dormancy.

What is a dormant Limited Company?

A dormant Limited Company is one without significant accounting transactions during a financial year. For contractors and freelancer, this will usually mean they’ve ceased trading, are no longer issuing invoices, incurring regular expenses, or receiving payments, or a company has been set up which isn’t trading yet.

However, it’s important to understand that by simply stopping trading you’re not able to file Dormant Company Accounts (DCA) if your company has traded in the past at any point. You’re only ever able to file DCA if your company has never traded since its incorporation. Once your company has traded historically, even if there are only a few to no current transactions, you must continue to file a full set of statutory accounts annually.

You are also required to continue to submit an annual Confirmation Statement, regardless of your current trading status. This is a legal requirement and confirms your company’s details (such as directors details, your registered office address, shareholders, etc).

Reasons why you’d put your company in a dormant state

Making your company dormant can be a strategic move, depending on what your business goals and circumstances are. The below examples include some of the common reasons why contractors and freelancers may choose dormancy:

• Taking a break from trading – you may be taking a sabbatical, maternity / paternity leave or a downturn in the market may be the reason for dormancy. By doing so you’re able to keep the structure of your company, without closing it down fully
• To protect your business’ name and costs – by registering a company and then making it dormant you’re able to reserve the company’s name, and allows you to protect intellectual property for future use
• Preparing for a future venture – you may decide to set up a company and put it in a dormant state so that you’re ready to hit the ground running when your next investment or project begins
• Restructuring or selling parts of your business – if your company is undergoing internal reorganisation, is winding down, or you’re preparing to sell assets or shares, by putting it into a dormant state you can keep it alive legally, without actively trading
• Avoiding dissolution – closing a company is final and cannot be undone, so dormancy allows you that flexibility to reactivate your company should your plans or circumstances change in the future

Are HMRC filings still necessary?

If your company is no longer trading, then you’re able to inform HMRC by notifying your local Corporation Tax office that your company is now in a dormant state. There are a few ways in which you can do this:

1. Send a letter to HMRC
2. Update your company’s status via your online Corporation Tax account
3. Call HMRC’s Corporation Tax helpline directly

HMRC may then issue you with a ‘Notice to deliver a Company Tax Return’ exemption for that period. However, you’re still able to file with HMRC if you choose to do so, especially if:

• You have allowable expenses (such as accounting fees, bank charges, or any software subscriptions) that result in a loss
• You want to ensure that those losses are caried forward to offset against future profits if the company resumes trading

Filing even when your company is 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.

By taking these steps you can significantly reduce the admin that’s involved in keeping a non-trading or dormant company compliant.

Are there any allowable expenses?

Even if your company is in a dormant state, there can 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)

If these types of costs are genuinely incurred for the business, then they may contribute to a trading loss that can be carried forward.

Limited Company dormancy – in conclusion

If you’re a contractor or freelancer that has made the decision to cease trading, or you’ve set a company up but are yet to start trading, it’s important to:

1. 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.
2. Continue to file a Confirmation Statement annually.
3. Consider whether filing with HMRC might be beneficial for loss relief purposes.
4. Evaluate whether it’s worth de-registering from VAT or closing the PAYE scheme.
5. Keep track of any allowable expenses, even while dormant.

By doing so you’re able to 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 SG Client Director to ensure you’re meeting your obligations while minimising overheads.

How SG Accounting can help

Your SG Client Director is only ever a phone call or email away, and is ready to help guide you through each and every stage of running your Limited Company. Get in touch with them to discuss any specific questions you may have about dormant companies, the process or the future of your company.