Dormant vs non-trading company: what the difference means.

The short answer

A dormant company is doing nothing at all. It has no trade, no income and, for Companies House purposes, no significant transactions in its records.

"Non-trading" is a looser, everyday phrase. It usually describes a company that has no trade but still has something going on. It might earn bank interest, hold investments or receive some other income. That company is not trading, but it is not dormant either.

The difference matters because it decides which returns you file and whether any tax is due.

Two bodies, two different tests

There is no single "dormant" status that covers everything. GOV.UK is clear that dormant means different things for Corporation Tax and for Companies House. A company can meet one test and fail the other, so it is worth checking each one separately.

Dormant for Companies House

Companies House calls a company dormant if it has had no significant transactions in the financial year. A significant accounting transaction is one the company should enter in its accounting records.

Only a few payments are ignored for this test:

• Share capital paid on formation. Money paid for shares by the people who set the company up.
• Certain Companies House fees. For example, the fee for a confirmation statement or a change of name.
• Late filing penalties. Civil penalties for delivering accounts late.

Anything else that belongs in the books counts. So if the company receives bank interest, or pays a supplier, it is no longer dormant in Companies House terms for that year.

Dormant for Corporation Tax

HMRC looks at whether the company is active. A company is usually dormant for Corporation Tax if it has stopped trading and has no other income, for example from investments. A new company that has not yet started trading can also be dormant.

HMRC's guidance lists things that count as activity. They include buying, selling, renting property, advertising, employing someone, earning interest and managing investments. Preliminary work, such as writing a business plan or negotiating contracts before you start, does not count as trading.

What a "non-trading" company looks like

Most companies people describe as non-trading fall into one of these patterns:

• A company that has stopped its main trade but still holds cash in an interest-paying account
• A company that holds shares or other investments and receives income from them
• A company that lets out a property it owns
• A company that is winding down, paying off its last suppliers and collecting its last debts

In each case, there are still transactions to record and usually income to report. HMRC treats earning interest, managing investments and renting property as activity. So the company stays within Corporation Tax and should expect to file Company Tax Returns and pay tax on any taxable profit.

Dormant vs non-trading at a glance

• Trade. Dormant: none. Non-trading: none.
• Other income. Dormant: none. Non-trading: often some, such as interest, rent or investment income.
• Transactions to record. Dormant: none, apart from the few that are ignored. Non-trading: yes.
• Annual accounts. Dormant: dormant accounts may be possible. Non-trading: normal accounts.
• Company Tax Return. Dormant: not needed unless HMRC sends a notice to deliver one. Non-trading: usually needed.
• Confirmation statement. Both: still required.

What a dormant company still has to do

Being dormant does not take a company off the register. The directors still have duties.

• Confirmation statement. Every company must file at least one every 12 months, dormant or not. You can file up to 14 days after the review period ends. Filing online costs £50. If yours is late, our guide on an overdue confirmation statement explains what to do.
• Annual accounts. These still go to Companies House. A small company that is dormant for Companies House can file dormant accounts instead of full ones. They do not need a profit and loss account or a directors' report. Most dormant companies can also claim exemption from an audit, though some cannot.
• The usual deadline. Dormant accounts have the same deadline as any other accounts. For a private company that is 9 months after the end of its financial year. Late filing penalties apply in the same way.

The penalties for private companies are £150 if accounts are up to 1 month late, £375 for 1 to 3 months, £750 for 3 to 6 months and £1,500 for more than 6 months. The penalty is doubled if accounts are late 2 years in a row. For more on what goes into accounts, see our guide to year end accounts.

Telling HMRC

You can tell HMRC online that your company is dormant for Corporation Tax. You will need the company name, its 10-digit Unique Taxpayer Reference, and the date it stopped trading if it ever traded.

After that, you do not need to file another Company Tax Return unless HMRC sends a notice to deliver one, or the company starts trading again. If you already have a notice, you must still file a return showing the company was dormant for that period. Telling HMRC does not replace your Companies House filings.

VAT and payroll

If the company is VAT registered and you do not plan to trade again, you must cancel the registration within 30 days of the company becoming dormant. If you do plan to restart, you send nil VAT returns while it is dormant. If you do not plan to restart in the current tax year, you should close the PAYE scheme.

What a non-trading company has to do

A company that has stopped trading but still has income carries on much like a trading company, just with fewer transactions.

• Keep accounting records for every transaction, including interest, rent and investment income
• Prepare normal annual accounts and file them with Companies House within 9 months of the year end
• File a confirmation statement at least every 12 months
• File a Company Tax Return within 12 months of the end of the accounting period, even if there is no tax to pay
• Pay any Corporation Tax, usually 9 months and one day after the end of the accounting period

Our guide on paying your Corporation Tax bill covers the payment side.

Restarting a dormant company

When a dormant company becomes active again, HMRC needs to know. If a company is within the charge to Corporation Tax and is now active, you must tell HMRC within 3 months of the start of its accounting period for Corporation Tax. The online registration service is the usual way to do this.

GOV.UK's restart guidance does not list a separate notice to Companies House. Keep the same accounting reference date, and send accounts within 9 months of the year end as normal.

A restart is also the right moment to set up the books properly. That means a bank feed in your software, a place for receipts and invoices, and a clear start date for the first active period. Our page on bookkeeping for limited companies covers what that looks like week to week.

Common mistakes

• Assuming "no sales" means dormant. Bank interest or a supplier payment can be enough to stop a company being dormant for Companies House.
• Telling HMRC and forgetting Companies House. The confirmation statement and accounts are still due.
• Filing dormant accounts for a company that had transactions. If there was activity to record in the year, dormant accounts are not the right format.
• Restarting quietly. Once the company is active again, HMRC needs to be told within the time limit.

If you are unsure which category your company is in, look at the bank statements for the year. If anything other than the ignored items went through, the company is unlikely to be dormant for Companies House. Keep full records, and check the HMRC test separately. The glossary explains the other terms used here.