Every limited company in the UK sits in one of two states—dormant or active. These are not marketing terms. They have real implications for your tax filings, annual accounts, Companies House reporting, and how HMRC views your business. Confusion between the two can lead to missed deadlines, unnecessary filings, or worse, non-compliance penalties. Whether you have a company that is not trading yet, one that has paused operations, or you are unsure how your company is currently classified, it is essential to understand what these terms mean. In this blog, we explain the difference between dormant and active status, when each applies, what needs to be filed, and how AFG helps keep your company records accurate and compliant.
A dormant company is one that is not currently trading and has had no significant accounting transactions during the financial year. That means it is not buying or selling goods, earning income, incurring expenses, paying salaries, or operating a bank account for business use. The company may exist as a legal structure, but it is not engaged in any commercial activity. It might be holding intellectual property, set up for a future project, or retained to protect a business name. Dormancy is a formal status with Companies House and HMRC and comes with reduced reporting requirements—but it must be applied for and managed properly.
An active company is any company that is carrying out business activity. That includes issuing invoices, paying expenses, employing staff, earning interest on a business account, or entering contracts. HMRC considers a company to be active as soon as it starts any form of trading, not just when it starts making a profit. Companies House does not make this distinction for activity, but they still expect annual filings from all companies. The key difference lies in what HMRC expects and when tax obligations begin.
If your company is not trading and you do not plan to start trading soon, you must inform HMRC. This tells them that the company has no taxable activity and does not need to file a Corporation Tax return. If you do not notify them, HMRC will assume the company is active and expect filings. You can notify dormancy through your HMRC account or by contacting the Corporation Tax department directly. HMRC will confirm the change and suspend filing notices until your status changes. It is important to do this early, ideally within three months of incorporation or the end of trading, to avoid receiving unnecessary demands or penalties.
Even if your company is dormant, some filings still apply. Companies House requires you to file a confirmation statement and dormant company accounts every year. The accounts are simplified and confirm that the company had no significant transactions. You must still maintain statutory registers, update any changes to directors or addresses, and pay any fees related to company filing services. The confirmation statement must include accurate shareholder and PSC information, even if nothing has changed. Failing to submit these documents can result in your company being struck off the register.
A significant transaction is any entry that affects your company’s financial position. This includes:
Receiving income
Paying for services or goods
Paying wages or salaries
Paying interest or bank charges
Buying or selling assets
Minor transactions such as paying for Companies House filing fees or penalties do not count as significant. However, once you begin any commercial activity beyond these exclusions, your company is considered active and must follow full accounting and tax rules.
If your dormant company begins trading, you must inform HMRC within three months of starting. This reactivates your Corporation Tax record and triggers filing obligations. You must also update your accounting records, start tracking transactions, and ensure that any payroll or VAT registrations are completed if applicable. Your next set of accounts will be full trading accounts rather than dormant accounts. It is important to coordinate this correctly so that your reporting dates and financial data are aligned. At AFG, we help clients make this switch seamlessly and ensure that all notifications are filed at the right time.
Yes. A company can go from active to dormant and back again as many times as needed. This is common for businesses that operate seasonally or hold investment assets. Each time your company’s status changes, you must inform HMRC and adjust your filings accordingly. Companies House will continue to expect annual accounts and confirmation statements regardless of activity, so staying dormant does not mean ignoring your legal obligations. Switching status repeatedly can be managed effectively with the right systems in place, but it does require careful tracking.
One of the most common misunderstandings is that a company can be dormant just because it is not profitable. That is not true. If the company is trading, even at a loss, it is active. Another misconception is that newly formed companies are automatically dormant until they make their first sale. In reality, taking steps like ordering stock or paying a developer for a website can make a company active in HMRC’s eyes. We also often see directors assume that doing nothing will signal dormancy. That is not the case. HMRC must be informed explicitly. Otherwise, penalties may be issued for missed returns, even if there was no trading activity.
There are several reasons a company might remain dormant:
To reserve a business name or structure for future use
To hold intellectual property or trademarks
To create a group structure or subsidiary that is not yet trading
To pause operations during a restructure or downturn
To preserve a legal entity during a gap in activity
These are all valid strategies. A dormant company can be a useful tool when managed correctly. The key is to keep filings up to date and to avoid any activity that might unintentionally reclassify the business as active.
At Allied Financial Group, we manage company status changes for clients who want to remain compliant without the administrative burden. We notify HMRC of dormancy or reactivation, prepare dormant company accounts, submit confirmation statements, and maintain your statutory registers. If you plan to start trading, we handle your tax registration, update Companies House records, and help you transition to full accounting and reporting. If you have multiple companies or group structures, we also manage dormant holding companies alongside active trading businesses. Our goal is to keep your records clean, avoid penalties, and make sure your business is ready to act when the time is right.
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