Posted on: 26 November 2020

An option for those severely affected by COVID-19

There can be no doubt that COVID-19 has been a huge disruption for businesses, with many of them, big or small, affected so badly they have needed to temporarily take a break from trading.

Whilst there is government support available to help keep businesses going, there is another option that businesses can explore that could allow them to continue trading at a later date. Carry on reading as we answer some frequently asked questions on dormant businesses, and how you could use this option should you need to temporarily stop trading.

What is a dormant business?

A dormant business is a business that has been incorporated into Companies House but isn’t actively trading or receiving a form of income.

Dormant businesses are considered inactive by HMRC so they aren’t subject to Corporation Tax. Businesses can be dormant from the date it is incorporated into Companies House, or become dormant following a period of trading.

Why do companies become dormant?

Some of the reasons why businesses may become dormant are:

  • To reserve a company name whilst readying the business for trading
  • To protect the name of the business from being registered by another business
  • To restructure a business
  • If the business owner needs to take a period of leave. This could be caused by:
  1. Illness
  2. Maternity leave
  3. Travel
  4. Sabbatical

How do you restart a dormant business?

To restart a dormant business, you need to take the following steps:

  1. Tell HMRC that you have begun trading again by registering for corporation tax
  2. Within 9 months of your company’s year-end, send your accounts through to Companies House
  3. If you have a Corporation Tax bill due within 9 months and 1 day of your business’ year-end date, this must be paid.
  4. You must send a full Company Tax return to HMRC within 12 months of your business’ year-end.

If you have a dormant business which has not begun trading yet, you still need to register with HMRC.

How do you work out deadlines for accounts and returns?

You still need to send annual accounts to Companies House even when you are dormant to ensure that reporting dates stay the same on returns and accounts. To help do this, you can:

  • Keep your business’ account reference the same as what Companies House has on record
  • Prepare statutory accounts as you would if your business was not dormant for the 12 months leading up to the accounting reference date
  • Send your reports through to Companies House to complete your Company Tax Return
  • Restart your business activities in line with the established dates with HMRC

Accounting example

If your dormant business’ accounting reference date is 30th September, and you start your business activities on 1st May, you will need to make your set of statutory accounts for the period between 1st October and 30th September, and send your accounts to Companies House for the period between 1st May to 30th September.

After this, you will need to complete your account and the Company Tax Return for 1st October to 30th September every year.

Dormant businesses and COVID-19

Making your business dormant can be a strategy for your business to help manage the effects of COVID-19. Exploring making your business dormant could help protect you if there are measures restricting your trade due to local or even national lockdowns.

If you have made your business dormant due to COVID-19, you should be aware that you will not be able to claim any of the government support measures, as a dormant business can’t claim any financial income.

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What is a Dormant Business?

Business Guidance

What is a Dormant Business?

26 November 2020
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Business Guidance

New digital tax checklist

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