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Making Your Limited Company Dormant or Non-Trading

Limited Company

Contractors are facing uncertain times with contracts terminated or suspended due to Covid 19, alongside the continual uncertainty of the impact of Off Payroll and IR35 Reform in April 2021. Unsurprisingly many contractors are considering closing their Limited companies, but this isn’t the only option.

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Retaining your limited company as “non-trading”

Contractors have been the backbone of the UK economy for some time and they have proven to be a vital ingredient in previous economic recoveries. Retaining your company as a “non-trading” company means you are ready to react to a rapidly changing market, you have a company all ready to go and importantly you have a reputation and experience that you can share with new customers.

But what does it mean to be non-trading, is that the same as being a dormant company? What do you need to file if you are temporarily not trading?

Unhelpfully, HMRC and Companies House use different definitions of a “non –trading” or “dormant” company.

HMRC

HMRC deem a Limited Company to be dormant from the day the company is first incorporated until the day before the company starts to trade. During this dormant period, irrespective of how long it lasts, there are no requirements for a company to file Annual Accounts or a Corporation Tax Return.

HMRC will assume that the company is dormant unless the directors inform them that they have started to trade. Directors must inform HMRC within 3 months of the first day of trade.

Once a company has begun to trade, HMRC will never re-classify it as “dormant”, so for contractors putting their company temporarily on hold, HMRC will not see you as dormant. Instead during periods where your company does not trade it will be known as “non –trading”. If you don’t let HMRC know that your company is non-trading, they will assume that it continues to trade and all filing requirements will remain in place. If you do let them know that you are “non-trading”, they will not expect any formal filings for up to a period of 5 years.

Companies House

Companies House will call your company dormant if it’s had no ‘significant’ transactions in the financial year. Significant transactions would include raising invoices, receiving payments, making salary and other payments. Significant transactions don’t include:

  • Filing fees paid to Companies House
  • Penalties for late filing of accounts
  • Money paid for shares when the company was incorporated

If your company is “dormant” you still need to file a Confirmation Statement and annual accounts with Companies House. If your company qualifies as a “small” company you can file “dormant” accounts instead of a full set. Once you start to trade again, you don’t have to let Companies House know but you do need to file a set of accounts that show you are trading.

Why you might want to put your limited company into a non-trading state

Company closure can be costly and is often irreversible if you change your mind, so in times of uncertainty it makes sense to give yourself the choice. Filing requirements for a “non-trading” company are greatly reduced and because you are not trading you will need less support so you can save on Accountancy fees too.

So, if your company has stopped invoicing over the last few weeks and you no longer have any activity to report, why not keep your options open whilst looking for future opportunities? Not sure if a new permanent job is going to work out? Why not speak to your accountant about putting your company into a non – trading state while you complete your probation period and see if a return to employment suits you?

If you have any questions or if we can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.com

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