What Is a Dormant Company? Definition, Benefits & Tax Guide [2025]

Ever wondered why someone would keep a company that doesn’t trade? In the UK, a dormant company is one that exists legally but isn’t active for business. It’s often used to reserve a name, prepare for future plans, or pause a venture without closing it. But even if it’s inactive, there are still legal duties to fulfil. This guide breaks down what a dormant company is and how to manage one in 2025.

What is a Dormant Company?

A dormant company is a business that is legally registered with Companies House but is not currently active in trading and has no significant financial activity to report.

HMRC vs Companies House: Definitions

There’s an important difference between how Companies House and HMRC define a dormant company:

Example

Let’s say your company hasn’t traded or made any purchases, but you left the company’s bank account open and it earned £1.12 in interest.

So, to stay fully dormant in the eyes of both bodies, you must avoid all income and financial activity, even small ones like interest.

What counts as trading?

To keep a company dormant, it cannot carry out any trading activity. Here’s what counts and what doesn’t:

❌ Transactions that break dormancy

✅ Transactions that don’t break dormancy

Any activity beyond the bare minimum could trigger Corporation Tax duties and full accounts.

Why would anyone keep a Company Dormant?

Some people assume that if a business isn’t trading, it should be closed. But there are plenty of strategic reasons to keep a company dormant and they often reflect forward planning, legal foresight, or flexibility.

Example #1

Olivia launched a digital marketing agency and registered a second company for a potential skincare brand she’s been dreaming of. She’s not ready to trade yet, but she doesn’t want to lose the name or have to go through registration again. She keeps the company dormant until she’s ready.

Example #2

Now imagine Ahmed, a sole trader who recently incorporated a company to hold the name of a new food delivery idea. He’s still testing the market and hasn’t started trading. Instead of closing the company, he keeps it dormant, saving time and paperwork down the road.

📍 More established businesses also use dormant companies. For example, a tech company can create dormant subsidiaries to launch into different markets in the future or to isolate intellectual property from the main trading entity.

Common reasons to keep you company dormant

Legal and financial benefits of dormancy

Dormancy isn’t just for people who forgot to close their business. It can also be a smart move for long-term planning, reducing admin stress, or saving money while keeping your options open.

1️⃣ Save on tax and accounting costs

As long as your company is truly dormant, you won’t have to pay Corporation Tax. You also get to file simplified dormant accounts instead of full statutory accounts, which can significantly reduce your accounting fees.

2️⃣ Lower admin burden

With no active trading, there are fewer documents to track and submit. You’ll still need to file your confirmation statement and dormant accounts annually, but the complexity is far lower compared to a trading business.

3️⃣ Protect your company name

Keeping a company dormant allows you to reserve a company name and protect it from competitors or copycats, even if you don’t plan to use it immediately.

4️⃣ Maintain a legal entity

A dormant company is still a registered UK limited company. This means you can keep legal protections, such as limited liability, in place while you’re on pause. You can also use the structure later without going through registration again.

5️⃣ Flexibility to restart trading

You can reactivate your company at any time by informing HMRC and resuming trading. You don’t need to form a new company or go through new director/shareholder appointments if all the details are already in place.

6️⃣ Use it as a Holding Company

Some businesses set up dormant companies to hold intellectual property (IP) or act as holding entities for future business units. This can help with long-term tax planning or organisational structure.

7️⃣ Avoid dissolution and start-up delays

If you close a company and later want to restart, you’ll have to go through incorporation, pay the registration fee again, and risk losing your original company name. Dormancy helps you avoid this hassle.

Obligations: What you still have to file

Even if your company is not trading, it doesn’t mean you can ignore Companies House or HMRC. Dormant companies still have legal obligations you must meet every year.

At Companies House

You must still file key documents with Companies House to keep your company on the register:

At HMRC

If you were previously trading, you must:

VAT and PAYE

If your company was registered for VAT or employed staff, you must take extra steps:

Penalties for non-compliance

Filing late or failing to notify authorities can lead to real trouble.

📌 Companies House

📌 HMRC

Neglecting to deregister can trigger unnecessary filings, and missing them may result in penalties, even for a company that isn’t doing anything.

Common mistakes when managing a Dormant Company

Even well-meaning directors can trip up when managing a dormant company. A single oversight, ike forgetting to close a bank account or missing a filing deadline, can result in fines, tax demands, or the company being struck off. Here are the most common pitfalls to look out for:

❌ Assuming 'no trading' means 'no action required'

Just because your company isn’t trading doesn’t mean you can forget about it. Dormant companies must still file annual confirmation statements and dormant accounts. Failure to do so can lead to penalties or even involuntary dissolution.

❌ Not informing HMRC

If your company has stopped trading but you don’t notify HMRC, they may continue to expect Corporation Tax returns. Even if you don’t owe tax, failing to file returns they’re expecting can result in automatic penalties.

❌ Forgetting to close bank accounts

Many directors leave a company’s bank account open, assuming it’s harmless. But if the account earns even a few pence of interest, HMRC may no longer consider the company dormant. That small amount can trigger filing requirements and tax obligations.

❌ Missing filing deadlines

Dormant or not, you must still submit your confirmation statement and dormant accounts on time. Companies House fines start at £150 and increase the longer you delay. If you ignore it completely, your company could be struck off the register.

❌ Making payments from a company account

Paying for a domain, email service, or anything else from the company’s account (even a minor renewal) can count as a “significant accounting transaction.” That ends dormancy and could require you to file full accounts.

❌ Not updating the director or registered address details

Dormant companies must still maintain accurate information with Companies House. If you move address, appoint a new director, or change your PSCs, you need to file the appropriate forms. Ignoring this puts your company at risk of being non-compliant.

Directors must also maintain statutory registers and ensure records are available for inspection, even if the company is dormant.

❌ Forgetting to deregister for VAT or PAYE

If your company had previously registered for VAT or had a PAYE scheme, you need to cancel them when going dormant. Failing to do so can lead to HMRC expecting regular submissions and issuing penalties when they don’t receive them.

❌ Assuming you don’t need help

While it’s possible to manage a dormant company on your own, many business owners assume it’s “set and forget.” In reality, staying dormant requires careful attention. Getting advice from an accountant or company formation agent can help you stay on the right side of the rules.

How to reactivate a Dormant Company?

Ready to start trading? You’ll need to reverse the dormancy officially:

Wrapping up

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Forget switching between apps and spreadsheets. ANNA brings everything together so you can run your business smoothly and stress-free. It even files the right forms with Companies House if your company details change.

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Plans start at £0/month, with optional add-ons like ANNA +Taxes for advanced tax filing. ANNA helps you save time, stay compliant, and keep control of your business.