Last week, I got a frantic call from one of my long-time clients, Sarah. She’d set up a company for a business idea that ultimately got shelved when a family emergency required her full attention. Eighteen months later, she’d just received a penalty notice from Companies House and was panicking about what she’d missed.
“I thought since the company wasn’t doing anything, I didn’t need to do anything either,” she told me.
It’s a common misconception I hear all too often. The reality? Even dormant companies have legal obligations in the UK. Let me walk you through what you need to know, based on my 15+ years advising small business owners.
What Actually Counts as “Dormant”?
First things first – what HMRC and Companies House consider “dormant” might not match your understanding.
In official terms, a dormant company has “no significant accounting transactions” during a financial year. Essentially, your company bank account should be gathering dust. No income, no expenses, no movement whatsoever – with only a few tiny exceptions.
The only transactions you’re allowed:
- Initial payments for shares when the company was set up
- Paying Companies House fees (like filing fees or name change fees)
- Settling any Companies House penalties
That’s it. Even paying for an accountant or your company bank’s monthly fee would technically make your company active in the eyes of HMRC.
The Paperwork You Still Can’t Escape
Unfortunately, “dormant” doesn’t mean “invisible to the authorities.” I learned this the hard way when I put my first company on ice back in 2010, thinking I could deal with it “later.”
Here’s what you still need to submit:
To Companies House:
Your Confirmation Statement (previously called the Annual Return) still needs filing every year. It’s essentially confirming that all the information Companies House has about your company is correct.
You’ll also need to file Dormant Company Accounts. The silver lining? These are dramatically simplified compared to trading accounts. For small companies, it’s basically a simple balance sheet and a few declarations.
I tell my clients to set calendar reminders for these deadlines – they come around faster than you think.
To HMRC:
You’ll need to notify HMRC that your company is dormant. Don’t assume they’ll figure it out when you stop filing returns!
In my experience, it’s worth calling them directly rather than just sending a letter. I spent three frustrating months once trying to get a client’s company officially registered as dormant because the letter got lost in the system.
Even after notification, HMRC might still require you to complete a Company Tax Return until they formally recognize your dormant status (yes, I know, it’s maddening).
If your company is VAT-registered, you’ll either need to cancel your registration or continue submitting nil VAT returns. Neither is particularly fun, but the former is usually simpler if you don’t plan to trade again soon.
- The Legal Requirements for a Dormant Company in the UK
- When Does a Dormant Company Become Active?
- When Should a Small Business Get an Accountant
- Everything you need to know about HMRC self-assessment
- What Expenses Can a Sole Trader Claim?
Real-Life Consequences of Getting It Wrong
Last year, another client, James, approached me after his dormant company had been struck off the register. He’d ignored the warning letters because “the company wasn’t doing anything anyway.”
What he didn’t realize was that the company still owned the trademark to his product idea. When the company was struck off, that trademark technically became “bona vacantia” (ownerless property) that passed to the Crown.
Getting his company restored and recovering the trademark cost him over £2,000 in legal fees and restoration costs, plus the stress of potentially losing his intellectual property.
The penalties aren’t just theoretical:
- Late filing penalties start at £150 for private companies and escalate quickly
- Directors can face personal liability for any outstanding debts if the company is struck off
- Your credit score can take a hit, affecting future borrowing
When to Wake Your Sleeping Company
A client I’ll call David kept his marketing consultancy dormant for three years while working abroad. When a dream contract opportunity arose back in the UK, he was able to reactivate his existing company within weeks, maintaining his business’s continuity and reputation.
When you’re ready to begin trading again:
- Contact HMRC to update your status
- Switch back to filing full accounts
- Register for any relevant taxes
Having that pre-existing company with its established history gave David a credibility advantage over starting fresh.
The Million-Pound Question: Keep It or Kill It?
I’m often asked whether it’s better to maintain a dormant company or dissolve it completely.
In my experience, maintaining dormant status makes sense if:
- You’re protecting a valuable business name (I’ve seen competitors swoop in on dissolved company names within days)
- You expect to resume trading within 2-3 years
- The company holds intellectual property or has brand recognition
- You have previous contracts that might generate future income
But if those factors don’t apply, dissolution might save you time and money. Just remember that forming a new company later will mean starting from scratch with no trading history.
Conclusion
One of my most successful clients kept her first company dormant for nearly five years while she raised her children. When she returned to business, that dormant company became the foundation of what is now a seven-figure enterprise.
Maintaining a dormant company isn’t just about compliance—it’s about preserving opportunities for your future self.
Don’t be like Sarah, frantically calling your accountant after receiving penalty notices. A little attention to your dormant company now could save you significant headaches later.
Have you kept a company dormant? I’d love to hear about your experiences in the comments below.
