A dormant company sounds like a single, simple status. It is not. HMRC and Companies House each use the word “dormant” to mean something different. Mixing them up is one of the most common ways founders end up with unexpected penalties. It can also leave them with a struck-off company they meant to keep. If you are pausing a UK limited company rather than closing it, understanding both definitions matters. Almost nothing else in this guide matters more.
This guide is about keeping a dormant company alive on paper, correctly, for as long as you need it. It does not cover the strike-off process itself, which a companion Prowess guide handles in detail. Nor does it deal with stopping self-employment: dormancy is a status only limited companies can hold, and sole traders simply stop trading and tell HMRC. If you are still weighing up which structure suits you, our guide to sole trader versus limited company sets out the trade-offs.
Two definitions of dormant that do not match
Companies House and HMRC both recognise dormancy, but they are answering different questions and their tests do not line up neatly.
Companies House defines a dormant company as one with no significant accounting transactions during the financial year. When working this out, three categories of transaction do not count: filing fees paid to Companies House, penalties for late filing of accounts, and the money paid for shares when the company was first incorporated. If nothing else has moved through the company’s bank account, it qualifies as dormant for Companies House purposes. This applies even if, technically, it holds assets or owes a small amount of share capital.
HMRC’s test is different again. For Corporation Tax, a company is dormant when it has stopped trading and has no other income, such as investment income. A new limited company that has not yet started trading also counts as dormant. Crucially, HMRC defines “trading” broadly. It includes buying, selling, renting out property, advertising, employing someone, or receiving interest. Earning interest on a business savings account, or employing a part-time bookkeeper, counts as trading. So a company doing either is not dormant in HMRC’s eyes, whatever Companies House says, even if it never invoices a single client.
This is why a company can be dormant for one authority and active for the other at the same time. It is also why directors need to tick both boxes, not just one, before assuming the company is safely parked.
The expensive confusion between the two tests
Here is where things go wrong. Directors often tell HMRC their company is dormant, hear nothing more, and assume the whole administrative burden has disappeared. It has not.
Once you tell HMRC your company is dormant for Corporation Tax, you stop owing Corporation Tax. You also stop needing to file a Company Tax Return, unless HMRC later sends a further notice asking for one. That is genuine relief from a real obligation.
But nobody has told Companies House anything, and Companies House does not care what HMRC thinks. Every dormant company must still file a confirmation statement and annual accounts with Companies House every single year. That applies regardless of its Corporation Tax status. Directors remain personally responsible for filing these on time. Missing them leads to automatic late filing penalties and, eventually, compulsory strike-off action against the company. Telling HMRC you are dormant does precisely nothing for your Companies House obligations. They run on entirely separate tracks, and both must be kept moving.
This is the mistake that catches out founders who pause a business for a year or two. They assume it runs itself in the background. A dormant company still has a pulse that needs checking, just a much quieter one.
What a dormant company actually costs to run
The good news is that keeping a dormant company compliant is genuinely cheap, once you understand what is required.
Dormant company accounts filed with Companies House use a simplified format and carry no filing fee at all. There is no profit and loss statement to prepare and no detailed notes. You just file a minimal balance sheet confirming the company has had no significant transactions.
Audit is not a concern either. Dormant companies that qualify as small are exempt from audit entirely, under section 480 of the Companies Act 2006. For almost every small dormant company, this exemption applies automatically and audit never comes into the picture.
The one fee you cannot avoid is the confirmation statement. Every company must file one at least once every twelve months, regardless of trading status. Under the current Companies House fee schedule, updated in February 2026, filing online costs £50. Filing on paper costs £110. For most directors, that modest annual fee is the entire financial cost of keeping a dormant company legally alive. Add an hour or two of admin, and you are done.
Where directors get caught out is not the fee itself but the consequence of missing the deadline. For a private limited company, late filing penalties for accounts start at £150 once they are up to a month overdue, then climb to £375, £750 and £1,500 at the three and six month marks. The penalty doubles if you file late two years running. Persistent failure to file either document gives Companies House grounds to strike the company off the register. That can happen whether you wanted the outcome or not.
When a dormant company is the right choice
Dormancy is not a default setting for every quiet period in a business’s life. It suits specific situations well.
- Protecting a company name or brand. If you have built reputation around a name, keeping the registered company dormant is far cheaper than defending a trade mark dispute later. The same applies if you want to stop a competitor registering it. It is one of the most common reasons founders choose dormancy deliberately, well before they are ready to trade under that name.
- Stepping back without closing down. Parental leave, caring responsibilities and health breaks rarely come with a neat end date, and founders, women in particular, often assume stepping back means dissolving the company. It does not. Dormancy keeps the structure intact and the door open, at £50 a year, until you are ready to decide what comes next.
- Parking a company between ventures. Founders who have closed one chapter and are testing a new business idea sometimes keep the existing company dormant rather than dissolving it. It makes particular sense if they expect to reuse the structure, the bank account, or the company number within a year or two.
- Holding assets unlikely to produce income. HMRC allows a relaxation here. A company that exists purely to hold chargeable assets, such as a property or an investment, can still be treated as dormant for Corporation Tax. The condition is that those assets are unlikely to produce any profits, income or gains in the near future. The moment that changes, so does the dormancy.
- Flat management companies. Many residential flat management companies have no trading activity beyond collecting service charges held on trust for leaseholders. That typically falls outside the definition of trading income. These companies often remain formally dormant for Corporation Tax for their entire existence. They still file accounts and confirmation statements with Companies House every year.
In all five cases, the appeal is the same. You keep the legal structure, the company number, and sometimes the bank account, without the ongoing tax filing burden of an active trading company.
Telling HMRC your company is dormant, and what happens next
You can tell HMRC a company is dormant for Corporation Tax when you register it as not yet trading. If trading has already genuinely stopped, you write to or call HMRC’s Corporation Tax office instead. HMRC’s own guidance on dormant companies sets out the process in detail.
Once HMRC accepts the company as dormant, you stop owing Corporation Tax and stop needing to submit Company Tax Returns. That status is not permanent or automatic, though. HMRC can still send a notice to deliver a Company Tax Return at any point. If one arrives, you must respond to it, even for a dormant company. Ignoring a notice to deliver because “we’re dormant” is not a defence. The notice itself creates the obligation. Penalties apply for missing the deadline, regardless of whether the company actually owes any tax.
Remember throughout this that HMRC’s acknowledgement of dormancy changes nothing at Companies House. The confirmation statement and annual accounts keep falling due on their normal schedule, every year, whatever HMRC’s records say.
Restarting a dormant company, or choosing dissolution instead
A dormant company is not meant to stay dormant forever by accident. The moment it starts trading again, even in a small way, you have a legal duty to tell HMRC.
Under section 55 of the Finance Act 2004, a dormant company coming back into the charge to Corporation Tax must notify HMRC within three months. In practice, this means adding Corporation Tax services back to your business tax account. You tell HMRC the actual date trading restarted, not the date you remembered to log in. From that point, normal Corporation Tax and Company Tax Return obligations resume. HMRC will expect returns covering the period since trading began again.
Restarting is usually straightforward if you have kept the Companies House filings up to date throughout. That is exactly why staying compliant during dormancy matters. A company with missed confirmation statements or overdue accounts is much harder, and sometimes impossible, to bring back smoothly.
Dissolution is the alternative, and for many founders it is the better choice. If you have no realistic plan to use the company again, no brand worth protecting, and no asset worth holding, the ongoing admin serves no purpose. However light it is, it remains unnecessary effort. Strike-off removes the company from the register permanently and ends the annual filing cycle altogether. The trade-off is that you lose the company name, the company number, and any history attached to it. If you later want to trade again, you start from scratch with a new registration.
As a rough guide: choose dormancy when you expect to use the company again within a year or two, when the name has commercial value, or when the company holds an asset you intend to keep. Choose dissolution when none of those apply. At that point, a dormant company only protects a decision you have already made not to use.
One further change is coming for companies claiming audit exemptions. From 1 April 2028, companies claiming an audit exemption will need to include an enhanced statement from the directors on the balance sheet. That includes dormant companies relying on the section 480 exemption. The statement confirms which exemption the company is claiming and that it genuinely qualifies for it. It is a small drafting change rather than a new audit requirement. Even so, directors preparing dormant accounts should expect to update their balance sheet wording from that date.
If protecting your company name is part of the reason you are keeping a structure dormant, it is worth revisiting how you chose your business name in the first place. Trade mark considerations may have shifted since then. And if dormancy is really a holding pattern while you work out what comes next, our guide on how to validate a new business idea is a useful next step. It will help you decide whether to restart the old company or start fresh.
