A dormant company is one that exists on the Companies House register but does nothing. People keep dormant companies for good reasons: to protect a name, to hold a business that will start later, to preserve the history of a business that has paused, or because closing a company properly takes effort they have not got round to. What catches them out is the assumption that a company doing nothing owes nothing. It does not. A dormant company has reduced obligations, not none, and the penalties for missing them are the same as for any other company. This guide explains the rules, the filings and the traps.
Two meanings of dormant
Companies House and HMRC use the word differently. For Companies House, a company is dormant in a financial year if it has had no significant accounting transactions during that year. For HMRC, a company is dormant if it is not trading and has no income, so that no Corporation Tax is due and no return is required. A company can be dormant for HMRC but not for Companies House, for example if it receives bank interest, and the Companies House test is the stricter of the two.
What counts as a significant accounting transaction
Almost anything. The only transactions Companies House disregards are the payment for shares taken by subscribers on incorporation, fees paid to Companies House for filings and for a change of name, and penalties for late filing. Everything else breaks dormancy for the year: a bank charge, interest received, a subscription paid from the company's account, an accountant's invoice settled by the company, rent, a loan. A company that is to stay dormant should have no bank account at all, or one with a zero balance and fees waived, and every fee including ours should be paid personally by the director.
What a dormant company must file
Every year, a confirmation statement within fourteen days of the review date, with the £50 Companies House fee, confirming the officers, registered office, registered email, shareholders and PSC register. And every year, dormant company accounts on form AA02 within nine months of the accounting reference date, consisting of a balance sheet showing the share capital and the required statements, with no profit and loss account or directors' report. A first set of accounts is due 21 months after incorporation. Late accounts attract the standard penalties of £150 to £1,500, doubled for consecutive late years, and persistent failure to file either document leads to compulsory strike-off.
The company must also keep a registered office that meets the appropriate-address rules, a registered email address, at least one director, and verified identities for directors and people with significant control under the rules in force since November 2025. Dormancy changes none of these.
HMRC
After incorporation HMRC writes with the company's Unique Taxpayer Reference and expects to be told whether the company is trading. Telling HMRC the company is dormant, through its online service or in writing, stops it issuing notices to file Corporation Tax returns. If HMRC is not told, it will issue a notice, the company will not file, and penalties will follow for a return that was never actually needed. When the company starts trading, HMRC must be told within three months.
Forming a company to be dormant
The commonest reason is name protection. Registering a name as a company stops anyone else registering the same or a too-similar name at Companies House. It does not give trade mark rights, so a competitor could still trade under the name without incorporating it, and a trade mark application is the complementary step for a brand that matters. Our dormant company formation is £29 plus the £100 Companies House fee, with the HMRC notification and the first year's filings available in packages.
Making a trading company dormant
A company that has stopped trading can be kept rather than closed. The transition needs doing in order: stop trading on an agreed date, collect debts and pay creditors, deregister for VAT within 30 days with a final return, close the PAYE scheme with final submissions and P45s, empty and close the bank account, extract any remaining funds as dividend or salary or document them as a loan, file the final trading accounts and CT600 for the last active period, pay the Corporation Tax, and tell HMRC the company has ceased. Shortening the accounting period to the cessation date draws a clean line so the first dormant year starts immediately. Our make a company dormant service handles the sequence.
Bringing a dormant company into use
Tell HMRC within three months of starting to trade, open a bank account, register for VAT and PAYE if needed, change the SIC code from 99999 through the next confirmation statement, and from that accounting period file full accounts and a Corporation Tax return. Nothing else changes at Companies House. A dormant company can also be renamed before use, which keeps dormancy intact provided the fees are paid personally.
Dormant or closed?
Dormancy costs around £130 a year including Companies House fees and keeps the option to trade again. Closure by voluntary strike-off costs once, £13 to Companies House plus the professional fee, and is final subject to restoration. If you are certain the company will not be needed, closure is cheaper and removes a recurring obligation. If there is any chance of reuse, or the name or history has value, dormancy is worth the modest cost. The pre-closure check at £29 gives an honest comparison.
Keeping a dormant company compliant
The practical arrangement is one annual exercise: the AA02 and the confirmation statement filed together, with the fees paid by the director. Our dormant company accounts service does both for £79 plus the £50 Companies House fee, with the dates diarised and reminders sent, so the company you formed to sit quietly actually does.
A worked example
A graphic designer formed a company in 2024 to protect her trading name but continued as a sole trader. She paid the £100 Companies House fee personally, never opened a bank account for the company, told HMRC it was dormant when the UTR letter arrived, and each year files a confirmation statement with the £50 fee and an AA02 showing £1 of unpaid share capital. Her annual cost is £50 to Companies House plus the fee for filing. The company is in good standing and can be brought into use whenever her business reaches the point where incorporation makes sense.
A builder stopped trading through his company in 2025 when he took a job, but left the bank account open with a £12 monthly fee. The company is not dormant for Companies House in any year the fee was charged, so it owes full accounts rather than the AA02, and because he never told HMRC it had ceased, HMRC issued a notice to file a Corporation Tax return and then a £100 penalty for not filing it. The cost of not doing the transition properly: full accounts for two years, two Corporation Tax returns showing nil, a penalty and an appeal.
The accounting reference date
A dormant company keeps the accounting reference date it was given at incorporation, the last day of the month of its first anniversary. It can be changed by filing form AA01, and aligning it to 31 March or 5 April before the company starts trading saves a short or long first period later. There is no cost to the change and it can be made while the company is dormant without affecting dormancy.
A worked example
A graphic designer formed a company in 2024 to protect her trading name but continued as a sole trader. She paid the £100 Companies House fee personally, never opened a bank account for the company, told HMRC it was dormant when the UTR letter arrived, and each year files a confirmation statement with the £50 fee and an AA02 showing £1 of unpaid share capital. Her annual cost is £50 to Companies House plus the fee for filing. The company is in good standing and can be brought into use whenever her business reaches the point where incorporation makes sense.
A builder stopped trading through his company in 2025 when he took a job, but left the bank account open with a £12 monthly fee. The company is not dormant for Companies House in any year the fee was charged, so it owes full accounts rather than the AA02, and because he never told HMRC it had ceased, HMRC issued a notice to file a Corporation Tax return and then a £100 penalty for not filing it. The cost of not doing the transition properly: full accounts for two years, two Corporation Tax returns showing nil, a penalty and an appeal.
The accounting reference date
A dormant company keeps the accounting reference date it was given at incorporation, the last day of the month of its first anniversary. It can be changed by filing form AA01, and aligning it to 31 March or 5 April before the company starts trading saves a short or long first period later. There is no cost to the change and it can be made while the company is dormant without affecting dormancy.