Dormant and Non-Trading Companies – What’s the difference?

Ever found yourself scratching your head over the terms ‘dormant’ and ‘non-trading’ when thinking about your company’s status? They might sound like they’re the same thing, but there are some important differences you should know about. So, let’s dive in and clear up any confusion.

So, What’s a Dormant Company?

Imagine your company as a bear. When it’s dormant, it’s like it’s in hibernation. According to Companies House, a company is dormant if it hasn’t had any ‘significant’ transactions in the financial year. We’re talking about things like raising invoices, receiving payments, making salary and other payments. But don’t worry, filing fees paid to Companies House, penalties for late filing of accounts, or money paid for shares when the company was incorporated don’t count as significant transactions.

Now, HMRC sees things a bit differently. They consider a company dormant from the day it’s born (incorporated) until the day before it starts to trade. During this sleepy period, there’s no need to file Annual Accounts or a Corporation Tax Return. But once your company wakes up and starts to trade, HMRC won’t put it back to sleep – it’ll never be classified as “dormant” again.

And a Non-Trading Company?

A non-trading company is like a car parked in the garage. It’s not currently out on the road doing its regular business, but it’s still capable of starting up and driving off when needed.

HMRC and Companies House have different views on what a non-trading company is. According to HMRC, a company is considered non-trading during periods where it’s not out on the road (trading). If you let HMRC know that your company is parked up, they won’t expect any formal filings for up to a period of 5 years.

Spotting the Differences

The main difference between a dormant and non-trading company is what they’re up to. A dormant company can’t engage in any significant transactions, while a non-trading company can, but it’s not actively trading. Another key difference is in the paperwork. Both dormant and non-trading companies need to file a Confirmation Statement and annual accounts with Companies House. However, if your company is small enough, you can file “dormant” accounts instead of a full set.

Why Park Up Your Company?

Keeping your company as a non-trading company rather than closing it can be a smart move in a fast-paced market. It means you’re ready to hit the road quickly when new opportunities come up, and you can keep your company’s reputation and experience to share with new customers.

Wrapping Up

Getting your head around the difference between a dormant and non-trading company is a big deal for small business owners. It helps you make the right decisions about your company’s status and understand what each status means for you.

And remember, whether your company is dormant, non-trading, or active, it’s super important to stay on top of your filing requirements to avoid penalties and keep your company in good standing.

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