Many people are under the impression that dormant companies can be forgotten about, that they need not file a Corporate Tax Return and that they will incur no penalties for failure to submit one. This is simply not true and you should take care to avoid incurring unnecessary penalties.

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When you set up a new limited company, there will normally be some time that the company is dormant; in other words, where no trading happens. HMRC takes a practical approach to this and doesn’t expect you to send a Corporate Tax Return until the company becomes active. The same applies when the company has stopped activity.

The problem, of course, is that HMRC doesn’t know that your company is dormant. They will assume that you are operating from the time you register your company with Companies House.

If they are not aware that your company is dormant, they will expect a return; the fine for not submitting can be up to £1000. If you don’t receive a return, it doesn't mean that HMRC knows your company is dormant. If you don’t tell HMRC and don’t submit a form, they will fine you.

How can you prevent this from happening?

In the case of a recently-formed company, you need to complete and submit Form CT41G, stating that your company is still dormant.

In the event that your company has ceased activity, you’ll need to write to the tax office that handles your company’s Corporate Tax.

If you have told HMRC that your company is dormant, you will then need to let them know when the activity starts or resumes – once again by submitting Form CT41G.

It's important to note that there is a difference between an inactive and a dormantcompany. According to HMRC, a company is inactive “if it has no significant accounting transactions”. So a company that was started with - for instance - £1500 of share capital, which is placed in an account that pays interest, is not considered inactive.

If you want to guarantee dormant status to avoid having to submit returns, keep all of your company’s money in a non-interest producing account. But remember that even if you don’t need to submit a Corporate Tax Return to HMRC, you must still submit annual accounts to Companies House, albeit in a shortened format.

If you decide that you are not going to do anything with your company, let Companies House know to strike it off. In most instances, even if you have been told to pay a late filing penalty, you can avoid paying the penalty by submitting a DS01 form (with the £10 fee) and applying to get the company dissolved. This will not in any way affect your ability to form a limited company in the future.

For expert assistance with tax and accounting matters, or to form your own limited company, take a look at our accounting services.

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