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15th March 2021

With the IR35 reform forcing more and more limited company contractors to work via an umbrella solution, many evaluate their situation and question their limited company’s future. The good thing is, there is dormancy, a solution that can buy you time if you are not ready to let go of your limited company.

A limited company in a dormant state will tick over, not trade but remains to be at hand when you need it a moment’s notice. In this guide, we’ll explain what dormancy is and when you might put your company in a dormant state.

Definition

Simply put, a dormant company is a limited company that is not currently trading.  It will only be able to file ‘dormant’ company accounts is it has not traded for the entire accounting year.

Activity or the lack of

When a company is dormant, only insignificant transactions necessary for maintaining its existence are allowed to be claimed, such as bank charges, accountancy fees or Companies House Filing fees and filing penalties.

Admin Responsibilities

While the company is dormant, there are still a few mandatory administrative tasks required to be completed for HMRC and Companies House. Luckily a good accountant will take care of these for you, included in their dormancy fees.

An annual Confirmation Statement must be filed with Companies House to confirm company information like shareholders, names and addresses.

Annual accounts are still required when a company is dormant, showing the transactions that have gone through the company while not trading.

If you have a dormant company that has never traded before, a particular form (AA02) needs to be filed.

When would you place your company in dormancy?

If you want to take a break from contracting for a while but want to keep the company name, dormancy might just be the perfect solution. It will save you the hassle and the costs of closing down and then incorporating another company again.

You are caught by IR35. Suppose your current agreement is found to be inside IR35, and you have to work through an umbrella for a while. In that case, you can place your company in dormancy until you find a contract outside the legislation and continue working as a limited company contractor. We have a specially designed service that allows you to do this very easily.

Securing a trading name or brand. While you are a sole trader or have plans to grow your brand in the future, you may want to incorporate a company to ensure that the name doesn’t get used by someone else in the meantime.

How long can you keep a company dormant?

There is no time limit on how long you can keep a company dormant, but you do have to meet all the reporting requirements explained above.

How can MyAccountant help?

If you are thinking about taking a break or going via the umbrella route, company closedown doesn’t have to be the only option; dormancy is a cost-effective way to keep your company at hand.

As mentioned above, we even have a service package that lets you combine our sister company’s umbrella and our dormancy service all under one roof. Click here to find out more.

To discuss your circumstances, please get in touch by emailing info@myaccountant.co.uk or call us on 0800 917 9100.

Please visit our blog page for more useful guides, and for updates on future articles, please follow us on LinkedIn, Twitter or Facebook.

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