There Is No Such Thing as "A Dormant Company"
That is a provocative way to open a guide about dormant companies, so let us be precise about what it means.
There is no single status called dormant. There are two of them. Companies House operates one test, HMRC operates a completely different one, and the two are not connected in law, in practice, or in any computer system. You can be dormant for one and active for the other. Telling one that your company is dormant tells the other absolutely nothing.
GOV.UK does document both, on two separate pages, and it is accurate on each. What it never quite says in one sentence is that these are different tests measuring different things, which is why so many directors are confident they have "made the company dormant" when they have only done half of it. In our experience that misunderstanding, rather than any deliberate avoidance, is behind most of the penalty letters that land on dormant companies.
So this guide handles them separately, then puts them back together. It covers what each definition actually says, what quietly breaks dormancy without a single sale being made, everything a dormant company still has to file, how to make a company dormant properly, and the part almost nobody has priced in: what holding a dormant shell now costs after the changes of the last twelve months.
What Dormant Means to Companies House
The Companies House definition sits in section 1169 of the Companies Act 2006, and it is one sentence long:
A company is "dormant" during any period in which it has no significant accounting transaction.
Everything hangs on that last phrase, and the Act defines it too. A significant accounting transaction is one that section 386 requires to be entered in the company's accounting records.
Read that again, because it is the single most important thing on this page. The Companies House test is not a trading test. It is a bookkeeping test. The question is not whether you sold anything, served anyone, or made any money. The question is whether anything happened that your books were legally required to record. If the answer is yes, even once, the company was not dormant for that period.
That is a far stricter standard than "not trading", and it catches people out constantly, because directors reasonably assume a company that has never had a customer must obviously be dormant.
The exceptions, and what they tell you
Section 1169 then lists the transactions you are allowed to disregard. The list is short and worth knowing in full:
| Disregarded under section 1169 | Not disregarded |
|---|---|
| Shares taken by the subscribers to the memorandum on formation | Bank interest received |
| A fee paid to the registrar for a change of company name | Bank charges and account fees |
| A fee paid to the registrar for re-registration | Accountancy or filing agent fees |
| A civil penalty for failing to file accounts on time | Insurance premiums |
| A fee paid to the registrar for a confirmation statement | Anything paid to or from a third party |
Two things jump out of that table.
The first is that the exception list is made up almost entirely of money paid to Companies House itself. Parliament had to write a specific carve out for the confirmation statement fee, because without it the act of proving your company was dormant would have been the thing that ended its dormancy. That is a genuinely odd little corner of company law, and it is the clearest signal available about how narrow the test is meant to be. If the law needed an express exception to permit a £50 filing fee, you should not assume it quietly permits a £4 monthly bank charge.
The second is that bank interest is nowhere on that list. A dormant company with a business bank account that pays even a few pence of interest a year has, on a strict reading, had a significant accounting transaction. So has a company whose bank charges it a monthly account fee. The clean answer, and the one we give clients, is that a dormant company should have no bank account activity at all. Not a low balance. No movement.
What this means in practice
The most common ways a genuinely non-trading company loses its Companies House dormancy are unglamorous:
- Bank charges or interest on an account nobody closed.
- Paying an accountant, a formation agent or a registered office provider from the company account.
- A domain renewal, a software subscription or an insurance policy still on direct debit.
- Buying the company's own trading name or trademark.
- Paying a director or reimbursing an expense, however small.
- Repaying or drawing on a director's loan account.
None of those involve trading. All of them are transactions that must be entered in the accounting records, and all of them therefore end dormancy for Companies House purposes. If the company needs to incur a cost while it is dormant, the workable answer is usually for a director or the parent company to pay it personally and not to route it through the company at all.
What Dormant Means to HMRC
HMRC's test is different, and looser, and about something else entirely. HMRC does not care about your accounting records. It cares whether the company is active, meaning whether it is within the charge to Corporation Tax.
A company is active for HMRC if it is carrying on a business activity. HMRC's own list of what counts is broad: buying and selling, providing services, renting property out, advertising, employing someone, managing investments, and receiving interest. A company is dormant for Corporation Tax if it is not doing any of those and has no other income.
Certain organisations also get treated as dormant by concession. An unincorporated association or members' club whose Corporation Tax liability will not exceed £100 for the year can be treated as dormant, provided it is run for the benefit of its members and has no chargeable disposals or trading losses. Flat management companies are commonly treated the same way. These are the cases where HMRC has decided the tax at stake does not justify the paperwork.
There is also a useful carve out at the other end. Preliminary activity, such as writing a business plan or negotiating a contract before you start, does not make a company active. A company can exist for months preparing to trade without triggering Corporation Tax, which is why the majority of newly incorporated companies are legitimately dormant for HMRC on day one.
Telling HMRC, and the notice that overrides everything
You can tell HMRC that a company is dormant for Corporation Tax, and once you have, you will not be asked for a Company Tax Return for the periods it stays dormant.
There is one hard rule that sits above this. If HMRC issues a notice to deliver a Company Tax Return, you must deliver it, dormant or not. The notice creates the obligation. Being dormant is something you demonstrate in the return you file, not a reason to ignore the notice. The same applies if you have already filed a return in the past and have not yet notified HMRC of dormancy: keep filing until HMRC confirms otherwise. Late filing penalties for Corporation Tax follow the notice, not your view of whether the return was needed.
Going the other way, if a dormant company starts trading again, you must tell HMRC within three months of the start of the accounting period in which it became active.
The Two Tests Side by Side
This is the comparison that we think should be at the top of the GOV.UK page and is not.
| Companies House | HMRC | |
|---|---|---|
| Statutory test | No significant accounting transaction, section 1169 CA 2006 | Not active, not within the charge to Corporation Tax |
| Really measuring | Whether anything had to go in the books | Whether the company is carrying on a business |
| Broken by | A single recordable transaction, including bank interest | Trading, income, employing, letting property |
| How you tell them | You do not, you file dormant accounts | Notify HMRC directly |
| If you get it wrong | Accounts filed on the wrong basis, potential penalties | Unfiled returns, penalties, determination |
The practical consequence is that the stricter test is the one most people assume is the softer one. Directors think of Companies House as the light touch register and HMRC as the demanding one. On dormancy it is the other way around. A company can be entirely dormant for Corporation Tax while having failed the Companies House test three times over because of bank charges.
The other consequence is that these two states drift apart over time. A company that is properly dormant everywhere in year one starts paying a registered office provider in year two and is now dormant for HMRC and not for Companies House, and nothing will alert anyone to that until an accountant looks.
What a Dormant Company Still Has to Do
A dormant company is still a company. Dormancy removes almost nothing from the obligations list.
File annual accounts with Companies House, every year. A dormant company files dormant accounts, which are much shorter than full accounts, but they are still accounts and the deadlines are the ordinary ones. First accounts are due 21 months after incorporation, or three months after the accounting reference date if that is later. After that it is nine months from the end of each accounting period.
File a confirmation statement, every year. This is a separate filing on a separate clock, running from incorporation or your last statement rather than from your year end. It now costs £50 to file digitally. Our full guide to the confirmation statement covers what it does and does not do.
Keep a registered office and a registered email address. Both must be appropriate addresses where post and email will actually reach you. This is the single most common reason dormant company directors miss everything else: the reminders go somewhere nobody reads.
Have every director and PSC identity verified. Identity verification became compulsory on 18 November 2025 and is being phased in through the confirmation statement over a twelve month transition. Dormancy is not an exemption. If you have a dormant company you have not thought about since 2019, this is the obligation most likely to be sitting unmet right now.
Maintain the statutory registers and accounting records. Yes, even with nothing in them. Section 386 requires records adequate to show and explain the company's transactions, and "there were none" is a conclusion your records have to support rather than an excuse for not having any.
Late accounts attract automatic penalties, and these are not discretionary:
| How late the accounts are | Private company penalty |
|---|---|
| Up to 1 month | £150 |
| 1 to 3 months | £375 |
| 3 to 6 months | £750 |
| More than 6 months | £1,500 |
Those figures double if you file late in two successive financial years. A dormant company that produces no income can therefore generate a £3,000 liability purely by being forgotten, which is a strange thing to have to say about a business that does nothing.
Dormant Company Accounts, and the AA02
Dormant accounts are the lightest filing in UK company law, and reasonably so. For a company that has been dormant since incorporation and has only ever issued subscriber shares, the accounts are essentially a balance sheet showing called up share capital not paid, the prior year comparatives, a short set of notes, and two statutory statements.
Those statements go on the balance sheet above the director's signature, and they are not optional wording. One confirms that the company was dormant throughout the period and is entitled to audit exemption under section 480 of the Companies Act 2006 relating to dormant companies. The other confirms that the members have not required an audit and that the directors acknowledge their responsibilities under the Act. Filings get rejected for missing these more often than for anything else.
Companies limited by shares that have never traded can file on form AA02, the dormant company accounts form. Online filing through the Companies House service handles both companies limited by shares and companies limited by guarantee, and is free. There is no profit and loss account in a set of dormant accounts, because there is nothing to put in one.
Two limits are worth knowing. AA02 is for companies that have been dormant since incorporation and whose only transaction has been the issue of subscriber shares. A company that traded, stopped, and is now dormant has a balance sheet with real numbers on it, and needs proper dormant accounts rather than the short form. And a dormant company that is part of a group, or that fails the small company conditions, may not qualify for the section 480 audit exemption at all.
Dormant Subsidiaries
There is a further exemption that gets overlooked, and it is valuable inside groups.
Under section 394A of the Companies Act 2006, a dormant subsidiary can be exempt from preparing individual accounts entirely, not merely from having them audited. The conditions are strict. The company must be dormant throughout the year, its parent must be established under the law of a part of the United Kingdom, every member must agree to the exemption for that year, and the company must be included in the parent's consolidated accounts. The parent must then give a statutory guarantee of the subsidiary's liabilities under section 394C, and disclose the exemption in the notes to the consolidated accounts.
The trade off is explicit and it is a real one. The parent takes on the subsidiary's liabilities in exchange for the subsidiary not having to prepare accounts. For a group carrying a handful of dormant shells to protect names or hold nothing in particular, that is usually a good trade. For a dormant subsidiary with any history worth worrying about, it very much is not, and we would want to look at what is actually sitting in that company before recommending it.
How to Make a Company Dormant
If you are stopping trading and want the company to sit dormant rather than close, the order matters.
- Stop trading cleanly and pick a date. Ideally the end of an accounting period, so you have one clean set of trading accounts and then clean dormant ones, rather than a part year of each.
- Settle everything. Collect trade receivables, pay trade payables, file the final VAT return and deregister if you no longer need to be registered, close the PAYE scheme if you have one, and clear or formally deal with any director's loan. Everything you leave outstanding is a future transaction, and a future transaction ends dormancy.
- Deal with the assets. Distribute or transfer anything the company holds, taking advice first, because dividends can only come from distributable retained earnings and getting that wrong is expensive.
- Close the bank account, or at minimum stop all movement on it. This is the step people skip and the reason dormancy so often fails.
- File the final trading accounts and the Corporation Tax return for the period up to the date you stopped.
- Tell HMRC the company is dormant for Corporation Tax. This is a separate action from everything above.
- Update the SIC code if you want to, and understand what that does. SIC 99999 is described as "dormant company", but changing your SIC code does not make a company dormant and dormancy does not require code 99999. Companies House treat the SIC code and the accounts category as independent of each other. It is a description of activity, not a legal status, and we mention it because we have met directors who believed setting 99999 was the whole process.
- Diarise the two annual filings and make sure the registered office and registered email actually reach a person.
Cancelling the Corporation Tax obligation and doing nothing else is the classic half-completed version. The company then quietly accrues Companies House penalties for years while its director believes it has been safely mothballed.
Why Keep a Dormant Company at All?
There are good reasons and there are reasons that feel good.
The genuinely sound ones are narrow. Protecting a company name works, because a registered name blocks anyone else registering the same or a very similar one, and if the name has real commercial value that is worth paying for. Holding assets is a legitimate reason and an important one, because a company that owns property, cash or investments must not be allowed to be struck off, since assets in a dissolved company pass to the Crown as bona vacantia and getting them back is slow and expensive. A genuine pause, where you intend to trade again in the reasonably near future, is sensible, since keeping a company dormant is far cheaper and faster than incorporating again and rebuilding history, banking and credit. And a dormant company held for a specific future purpose, such as a group structure or a contract that has not started yet, is ordinary commercial practice.
The reasons that do not survive contact with arithmetic are the vague ones. Keeping it because closing feels like an admission. Keeping it because it might be useful. Keeping it because it was expensive to set up, which is the sunk cost fallacy wearing a suit. A dormant company kept for those reasons is a small annual bill and a set of personal legal obligations on its directors, in exchange for nothing.
Our position is that the decision should be made explicitly and revisited annually, rather than defaulted into. Every year, ask what the company is for. If there is an answer, keep it and keep it properly. If there is not, close it, and close it properly, which for a company holding anything at all means taking advice on distributions or a liquidation before dissolution rather than simply applying to strike it off.
The Economics Changed, and Almost Nobody Noticed
Here is the part that we think is genuinely new and is not being said elsewhere.
The dormant company has historically been close to free. A cheap or free annual filing, a modest confirmation statement fee, no tax, no accountant strictly required. That made "keep it just in case" an easy default, and it is why the UK register carries a very large number of shells that exist for no articulated reason.
Three changes have landed in quick succession, and together they move the numbers.
Fees changed on 1 February 2026. The digital confirmation statement fee went from £34 to £50, a rise of about 47%. In the same change, the digital voluntary strike off fee fell from £33 to £13, a drop of about 61%. Whatever the intention, the effect is unambiguous: holding a shell got materially more expensive and closing one got materially cheaper, in the same announcement, on the same day.
Identity verification arrived on 18 November 2025. Every director and PSC must now verify their identity. This is a personal obligation on individuals, not a company filing you can leave in a drawer. A dormant company with three legacy directors who cannot be traced is now a real problem rather than a dormant one.
Software only filing arrives on 1 April 2028. All accounts filed on or after that date must go to Companies House through commercial software in iXBRL format. The free web filing route that dormant company directors have used for years to submit their own AA02 in ten minutes disappears. Dormant companies will need software, or an agent with software, to do a filing that today costs nothing. We flagged this in our guide to the profit and loss account as the real practical change buried inside the accounts reforms, and dormant companies are the group it hits hardest in proportional terms, because for them it is not a change to an existing cost, it is a new cost where there was none.
Put those together and the annual cost of a dormant shell goes from roughly a £34 fee and an hour of your time to a £50 fee, verified identities for everyone on the board, and from 2028 a filing you probably cannot do yourself. Meanwhile the exit price has dropped to £13.
We are not going to tell you that means every dormant company should close, because for name protection and asset holding the case is unchanged and still good. What it does mean is that the "might as well keep it" answer, which was defensible when the cost was near zero, is no longer defensible on cost grounds alone. If you are holding a dormant company out of inertia, 2026 and 2027 are the years to make an actual decision, before the 2028 filing change turns a free obligation into a billed one.
Restarting a Dormant Company
Restarting is straightforward, and the deadlines are the thing to watch.
Tell HMRC within three months of the start of the accounting period in which the company becomes active. Register for VAT if you will cross the threshold, set up PAYE before the first payment to anyone including a director, and update your SIC code so the register describes what the company actually does. Your accounts will now be full accounts rather than dormant ones, and if you are VAT registered you are inside Making Tax Digital from your first return.
The one thing worth doing before any of that is setting up the bookkeeping properly rather than reconstructing it in month nine. A company coming out of dormancy is a rare clean slate, with no legacy postings and no bad habits, and it is by far the cheapest moment to get the chart of accounts right. Our guide to bookkeeping covers what that involves.
How IAK Can Help
Dormant companies are the least interesting thing an accountant does and one of the easiest things for a business owner to get quietly wrong, because nothing bad happens for about eighteen months and then several things happen at once.
We look after dormant companies for clients who have paused, who hold a name or an asset in one, or who run a group with a few sleeping subsidiaries. That means filing the dormant accounts and the confirmation statement on time, keeping HMRC's view and Companies House's view of the company aligned, checking each year that dormancy has not been accidentally broken by something as small as a bank charge, and telling you honestly when a company has stopped being worth keeping. Where a company is coming back to life, our accounting and tax planning teams handle the restart, and if it is going the other way we will make sure whatever is inside it comes out properly before it closes.
If you have a dormant company you have not thought about in a while, or you are about to stop trading and want to know whether to pause or close, that is a short conversation and a cheap one to have now rather than after a penalty notice. See how we work with small businesses, read more about what an accountant does, or get in touch for a free consultation.
Sources
- Companies Act 2006, section 1169, legislation.gov.uk, on the definition of a dormant company and the transactions disregarded in applying it.
- Companies Act 2006, section 480, legislation.gov.uk, on the audit exemption for dormant companies.
- Companies Act 2006, section 394A, legislation.gov.uk, on the exemption for dormant subsidiaries from preparing individual accounts.
- Dormant companies and associations, GOV.UK, on dormancy for Corporation Tax and for Companies House.
- Corporation Tax: trading and non-trading, GOV.UK, on what makes a company active, the £100 threshold for clubs and associations, and notifying HMRC.
- Life of a company, part 1: accounts, GOV.UK, on the contents of dormant accounts and the statements required on the balance sheet.
- Late filing penalties, GOV.UK, on penalty amounts, doubling for successive years, and accounts deadlines.
- Companies House fees are changing from 1 February 2026, GOV.UK, on the confirmation statement and voluntary strike off fee changes.
- Changes to accounts: moving to software-only filing, Companies House, on the move to commercial software and iXBRL for all accounts filings.
- Nature of business: SIC codes, Companies House, on the condensed SIC code list and code 99999.