When a company is no longer required, company directors may consider closing the company or making it dormant, should circumstances change and the need arises to resume business activity.
While this decision may appear straightforward, there are key factors that company directors will need to consider before making a company dormant or closing a company.
This article has been co-produced with Chelsea Williams, a corporate insolvency adviser at Scotland Liquidators. Chelsea has extensive experience advising on both personal and corporate insolvency matters in Scotland and is often the first port of call for individuals and company directors in financial distress.
What is a dormant company?
A dormant company is a business that is not engaged in business activity and has no significant accounting transactions during the accounting period. Significant transactions are those that must be recorded in the company’s accounting records. This does not include filing fees to Companies House, filing penalties for late accounts and money paid for shares upon incorporating the company.
A company is made dormant when it is no longer required, although there’s a likelihood that this could change in the future. The structure and contents of a dormant business are preserved when the company is made dormant. If the company director decides to continue trading, they are not required to inform Companies House as the company accounts will show that the business is trading. They must inform HMRC by registering for Corporation Tax again.
As a dormant company is incorporated on Companies House, there are accountingobligations company directors must fulfil.
Director responsibilities when operating a dormant company
Operating a dormant company requires minimal maintenance as the company is not engaged in business activity, however, there are basic accounting requirements that must be fulfilled by company directors.
Dormant companies must file a confirmation statement and annual accounts with Companies House; they are not required to file a Corporation Tax return. If the company is small and classed as dormant according to Companies House, filing dormant company accounts will suffice which is a simplified version of a full set of accounts.
What are the benefits of a dormant company?
Making a company dormant is an easy option for company directors who wish to retain a business, but do not wish to actively trade through it. There are reduced accounting obligations for dormant companies, which means that the accounting work required will be minimal and therefore, incur lower fees.
If the company director decides to resume business activity at any time, this can be done with little administrative hurdles.
Considerations when making a company dormant
Although a dormant company is not actively engaged in business activity, it remains on the Companies House register, and it must fulfil basic accounting requirements. If professional accountancy services are required, this will incur running costs.
A dormant company is often advised to close their business bank account as any significant accounting transactions can trigger the business into an active state.
To close a company or make it dormant?
Deciding whether to make a company dormant or close it comes down to the future intentions of the business owner. If there’s a chance the business may trade again, keeping it dormant is a flexible, low-maintenance option that preserves the company structure while reducing ongoing responsibilities. If there are no plans to resume activity, closing the company can offer a cleaner, more cost-effective exit. Directors should consider factors such as potential future use, administrative burden, running costs, and whether the company holds any valuable assets such as intellectual property or a trading name. Taking advice from an insolvency expert can help you make sure you make the right decisions based on your specific circumstances.
