There are situations when companies have to stop trading for a certain period of time. In situations like this, it is the best idea to make the company dormant. Many business owners have heard about this option and the opportunity to use dormant company accounts, but they are not sure how and why they have to do this.

Dormant company: a basic guide

It is good to know that dormant companies are described by the law. So, there is strict regulation about the things that make one company dormant. But, the MRC and Companies House are usually using a less strict definition of this term. For instance, according to the Companies House, a dormant company is a company that didn’t have notable accounting transactions during a normal accounting period. To make things clearer, they point out that a notable accounting transaction is any transactions that must be recorded into the accounting records.

Dormant companies have the right to conduct a limited number of transactions. For instance, they can pay the shares taken by Memorandum of Association subscribers. In addition, they can pay a civil penalty that comes as a result of late filing of dormant company accounts. Finally, they can also pay feeds to the official Registrar of Companies related to company name change, filing yearly returns and re-registration.

It’s worth mentioning that the HMRC has a different definition of dormant companies. They describe these companies as inactive companies that are not liable for typical Corporation tax.

Dormant company accounts explained

Every dormant company in the UK, including the ones that have never traded, have to file accounts at Companies House every year. But, what’s special about the dormant status is that business owners don’t have to deal with tons of paperwork like the ones that run active companies.

So, dormant company accounts have to include three basic things. First of all, they have to contain the figures and information from the last account year in order to make comparison easier. Next, they have to come with a balance sheet that will include specific statements located above the signature of the director of the company. They also need the printed name of the director confirming that the company was actually dormant for the whole year (accounting period). Finally, dormant company accounts also include specific notes related to the balance sheet.

It is possible for dormant companies that were not involved in trading to file these annual accounts over the Internet. As a matter of fact, it is highly recommended to finish this task online because the system comes equipped with tools that can correct mistakes. On the other hand, dormant companies that have finished some trading transactions, but became dormant later can use the so-called Form AA02.

All these things can be done by the company owner or the management of the company. But, in order to save some time, companies are using professional help from accounting companies that provide dormant company accounts.

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