Dormant company or strike-off: which is right?

Two options for a company you no longer use

Perhaps you have closed a business, moved into employment, or set up a company for a project that never went ahead. Whatever the reason, a limited company still has legal duties while it remains on the register. You broadly have two choices: keep it as a dormant company or apply to strike it off. (Formal liquidation is a third route, mainly for companies with significant assets or debts, and is outside the scope of this article.)

What does dormant mean?

Dormant has slightly different meanings for Companies House and HMRC, but the basic idea is the same. A company is dormant when it is not trading and has no other income, such as investment income.

For Companies House, a few transactions do not stop a company being dormant, including filing fees paid to Companies House, penalties for late filing of accounts and money paid for shares when the company was formed. For Corporation Tax, a company is usually dormant if it has stopped trading and has no other income, or is a new company that has not started trading.

Keeping a company dormant

A dormant company still has filing duties. According to Companies House guidance on dormant companies, it must still file a confirmation statement and annual accounts. A dormant company that qualifies as small can file simpler dormant accounts.

For HMRC, you can tell HMRC the company is dormant. If you have received a notice to deliver a Company Tax Return, you must still file it, even for a dormant period. HMRC may write to say it will treat the company as dormant and that you do not need to file returns unless asked.

When dormancy makes sense

• You expect to use the company again, perhaps for a new venture or contract.
• You want to protect the company name.
• The company holds a contract, licence or bank account you want to keep.
• You are not yet sure, and want time to decide.

The downsides

Dormant companies still need annual filings, and late filing penalties apply just as they do for trading companies. Directors also keep their legal responsibilities while the company remains on the register. If you restart trading, you need to tell HMRC.

Striking off the company

Striking off, also called voluntary dissolution, removes the company from the register. GOV.UK describes it as usually the cheapest way to close a company. You apply using form DS01, signed by a majority of the directors, and GOV.UK's strike-off guidance sets out the conditions. The company must not have:

• traded or sold off any stock in the last 3 months
• changed its name in the last 3 months
• been threatened with liquidation
• any agreements with creditors

The fee is currently £18. Once the application is accepted, a notice is published in The Gazette. If nobody objects during the notice period, the company is struck off and a second notice confirms it no longer legally exists.

Before you apply

Preparation is the part people underestimate. Before striking off you should:

1. Send final statutory accounts and a Company Tax Return to HMRC.
2. Close the PAYE scheme and tell HMRC the company has stopped employing people.
3. Deregister for VAT if the company is registered.
4. Pay any remaining debts and deal with any director's loan account.
5. Distribute remaining assets to shareholders.

The last point matters. Anything left in the company when it is dissolved goes to the Crown, including future payments such as refunds from HMRC. You will also lose access to the company bank account, so make sure it is empty and closed. How cash is taken out before dissolution affects how shareholders are taxed, so it pays to plan this step.

Comparing the two

• Cost now: strike-off has a small fee plus final accounts and returns; dormancy has no closing cost.
• Cost later: dormancy needs annual filings; a struck-off company needs none.
• Flexibility: a dormant company can restart; a dissolved company has to be restored, which is slower and costlier than keeping it dormant.
• Risk: dormant companies can still incur penalties; strike-off can be objected to by creditors or HMRC if anything is outstanding.

Tips if you decide to keep it

Set reminders for the confirmation statement and accounts. Keep the registered office address and director details up to date. If you decide later to strike off, check the 3-month rules from the date of the last activity.

How we can help

If you are keeping the company, our dormant company accounts service and confirmation statement filing keep it compliant. If you are closing it, our company strike-off service covers final accounts, tax returns and the DS01 application. If filings are already late, we can help with overdue company accounts first.

We help directors across Kent and the UK decide what to do with companies they no longer use. Send us a message with your company name and a short summary of its position.