When you form a new limited company HMRC will send you a letter, the letter will tell you the company UTR and it also says ‘you must tell HMRC within 3 months of starting or restarting any business activity’.
Personally I think it would much better if this was covered within the formation process, most people form a companies because they want to start business activity immediately so it would make sense that business are automatically registered or at least able to choose a date on which they will start activity, for example the start of a month, this would avoid HMRC creating multiple returns for the same year, as Corporation Tax returns can only be for 12 month period and companies are rarely formed on the 1st day of a month.
I have seen may situations where businesses forget to tell HMRC that they have started, but do submit accounts and the corporation tax return and HMRC so far HMRC have been ok with this, but that’s no guarantee that they will always be sympathetic.
What does ‘Active’ mean
Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:
- carrying on a business activity such as a trade or professional activity
- buying and selling goods with a view to making a profit or surplus
- providing services
- earning interest
- managing investments
- receiving any other income
What’s interesting is that the definition is slightly different for
- Other Taxes
- Company Law
- Accounting Standards
What does ‘Dormant’ mean
Your company is called dormant by Companies House if it’s had no ‘significant’ transactions in the financial year.
Significant transactions don’t include:
- filing fees paid to Companies House
- penalties for late filing of accounts
- money paid for shares when the company was incorporated
You do not need to tell Companies House if you restart trading. The next set of non-dormant accounts that you file will show that your company is no longer dormant.
Your company will be considered dormant for corporation tax purposes in any of the following circumstances:
- It is not trading and does not receive any other income. This includes investment income.
- It is a new limited company that hasn’t started trading yet.
- It is a flat management company.
- It is an unincorporated association or charity that owes less than £100 corporation tax.
A dormant company can be, for example:
- a new company that’s not yet trading
- an ‘off-the-shelf’ or ‘shell’ company held by a company formation agent intending to sell it on
- a company that will never be trading because it has been formed to own an asset such as land or intellectual property
- an existing company that has been – but is not currently – trading
- a company that’s no longer trading and destined to be removed from the Companies Register
To remain dormant – don’t make payments
- If the company pays an invoice for example from the accountant that would make the business active
- If the company pays its formation cost then it won’t be dormant
- If you have employees you will be active
- If you pay dividends you will be active
To stay dormant pay any costs personally and not via the company.
What are the Rules for Clubs
HMRC may treat your club or unincorporated organisation as dormant for Corporation Tax purposes if it’s active but both the following conditions apply:
- your organisation’s annual Corporation Tax liability must not be expected to exceed £100
- you run your club or organisation exclusively for the benefit of its members
For each year of dormancy your organisation must not have any:
- allowable trading losses for which it may want to claim relief
- assets it’s likely to dispose of, which would give rise to a chargeable gain
- interest or annual payments to pay out from which tax is deductible and payable to HMRC
When you think your company is dormant
If your company has stopped trading and has no other income, you can tell HMRC that it’s dormant for Corporation Tax.
If you’ve never had a ‘notice to deliver a Company Tax Return’
You can tell HMRC your company’s dormant over the phone or by post.
If you’ve filed a Company Tax Return or had a ‘notice to deliver a Company Tax Return’
You’ll still need to file a Company Tax Return online – this will show HMRC that your company is dormant for this period.
Dormant companies still need to file the annual confirmation statement and the dormant accounts.
How do tell HMRC you are active?
Within 3 months of becoming active you need to tell HMRC, you can do this via the Government Gateway but I think its easier to write to HMRC.
Your letter must include:
- the company’s name and registration number
- the date the company’s accounting period started
- the date to which the company intends to prepare accounts
- the company’s principal place of business
- the nature of the business being carried out by the company
- the name and home address of each director of the company
- if the company has taken over another business, the name and address of the former business and also the name and address of the person from whom the business was acquired
- if the company is a member of a group of companies, the name and registered office address of the parent company
- if the company has been obliged to comply with the Income Tax (Pay as You Earn) Regulations 2003, the date on which that obligation first arose
The letter must be:
- signed by a company director or company secretary
- include a declaration that the information is correct and complete to the best of their knowledge
Send your letter to:
Corporation Tax Services
HM Revenue and Customs
What about the self employed and Landlords?
If you earn over £1,000, then you will need to register.
For the self employed use form LC Forms (hmrc.gov.uk)
For Landlords use this form LC Forms (hmrc.gov.uk)
There are other forms for Partnerships
From April 2023 the Self Employed and Landlords earning over £10,000 a year will need file quarterly under Making Tax Digital rules.