I understand that Companies House and HMRC use the word Dormant in slightly different ways.
Companies House say that a company is only dormant if they are not active, trading or carrying on business activities.
Whilst HMRC says a company is dormant if they are not yet trading.
I apologise now if I have this completely wrong; however a friend has set up a company and has not started trading but has a company bank account and has spent money on getting his website ready to start trading later in the year.
Would this mean that his company is not dormant in the eyes of Companies House as they are carrying out business activities by operating a bank account and incurring costs on working on their website; but dormant in the eyes of HMRC as they have not started trading and are not yet liable for Corporation tax?
Thank you in advance for any help.
Michael
Replies (3)
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Books of account
A company is dormant if there if no entries to be made in the books of account
Companies House & HMRC
Under the Companies Act, a company may file dormant company accounts at Companies House if it has no transactions apart from payment for the shares and Companies House fees; see the Companies House guidance GP2 Chapter 8. There is a very simple format of dormant accounts - DCA or form AA02 - for dormant companies which have never traded.
For tax purposes, a "dormant" company is one which HMRC have agreed need not submit CT returns, usually on submission of the Dormant Company Insert to form CT41G. This may be either because it is not trading or because it is a members club or residents' association or company with negligible taxable income.
Your friend's company is not dormant under the Companies Act. It cannot file form DCA and must file proper accounts, even if abbreviated. It is not required to file a company tax return with HMRC because it will not have a CT accounting period until it commences trading. However, it is debatable whether it has actually started trading by "getting his website ready to start trading".