This is a common question asked by business owners, particularly in the current climate whereby trading on your own is difficult, so you may opt to take up a full-time role elsewhere for financial stability.
Before you decide, here’s a few things you need to know …
- Companies House and HMRC have different definitions and regulations for the terms “dormant” and “non-trading”
- If a trading company now wants to become dormant, having previously traded, it will be classed as non-trading
In the case of a non-trading company, the directors are for responsibe for:
- Informing HMRC the company is no longer trading to remove the requirement to submit a company tax return.
- Continue to file Annual Accounts as normal with Companies House, although these will be marked dormant
- Continue to file the annual Confirmation Statement with Companies House
Note: the non-trading status will be reviewed by HMRC every 5 years
Do I need an accountant to submit dormant company accounts for my company?
If your company has never traded, and has “no significant transactions”…
Then dormant accounts can be filed at Companies House using form AA02. These never traded before dormant company accounts are relatively straightforward, and if you’re confident, you could follow the guidance notes to submit these yourself. Apart from representing the share capital, most of the balances would probably be zero.
However, if your company has previously traded, you will not be permitted to submit dormant accounts at Companies House using form AA02.
Why can’t I submit simple dormant accounts to Companies House via form AA02 if my company has previously traded?
Think about this, the last set of trading accounts prepared for your company before it stopped trading will have contained Financial Statements including a Balance Sheet reporting various balances, i.e. bank, share capital and associated notes.
As such, updated accounts (whether the balances have changed or not since you last traded) are still required, as a continuation of the company balances will need to be reported. It is not simply a case of reporting zero in the accounts on the premise that no trade has taken place. These will not be accepted.
That is why, for SME’s, where there are no or very few transactions to report, an updated Balance Sheet is still required. Given such dormant accounts are probably straightforward to produce, they are usually much cheaper to prepare than normal trading accounts.
If a small number of transactions have taken place since you stopped trading, it is advisable to check whether they might constitute “trading activity” which will lead to the company needing to prepare full trading accounts and a company tax return for HMRC. Even incurring bank interest on bank accounts left open can trigger this. This is why we advise clients taking a temporary break from trade to close any bank accounts.
Overall, the decision to close or fall dormant will be based on more than just a desire to save on accountancy fees. You might also consider:
- Is this a temporary break?
- Do I want to save the company name?
- Do I have losses generated in my company that I could offset against future profits?
Either way, there is much to consider. So, if you are in any doubt, do get in touch, we’ll be happy to help.