Dormant Company or Non-Trading Company: What Is the Difference?

No sales does not automatically mean dormant

Business owners often use the terms dormant, inactive and non-trading as though they mean the same thing.

They do not always produce the same legal, accounting or tax result.

A company may have stopped selling to customers but still receive bank interest, pay expenses, manage investments, employ someone or rent out property. It may be non-trading in an everyday sense but still active for Corporation Tax and not dormant for Companies House.

There are also two official tests to consider:

The Companies House test for dormant accounts
HMRC’s test for Corporation Tax dormancy

The tests are related but not identical.

A company can therefore be dormant for one purpose and not dormant for another.

This guide explains the differences, the transactions that can break dormancy, what must still be filed and what directors should do when a company starts or stops activity.

What does dormant mean for Companies House?

For Companies House purposes, a company is dormant for a financial year if it has had no significant accounting transactions during that period.

A significant accounting transaction is broadly one that should be entered in the company’s accounting records.

Companies House allows a narrow group of transactions to be disregarded when assessing dormancy:

Money paid for shares by subscribers when the company was incorporated
Fees paid to Companies House for certain filings, including confirmation statements and company-name changes
Civil penalties paid for late filing of accounts

Other transactions will usually be significant.

That can include:

Customer income
Rent received
Bank interest
Investment income
Purchases
Bank charges
Accountancy fees
Insurance
Wages
Director payments
Loan interest
Asset purchases
Intercompany charges

A company with no sales can therefore fail the Companies House dormancy test because it paid ordinary expenses or received income.

What does dormant mean for Corporation Tax?

HMRC generally treats a company as dormant for Corporation Tax if it is not active, is not trading and has no other income.

Common examples include:

A new company that has not started business activity
A company that previously traded but has stopped all business activity
A company held for possible future use
Certain flat management companies
A company not within the charge to Corporation Tax in the relevant circumstances

HMRC considers a company active where it is carrying on a business activity, trading or receiving income.

Activities that can make a company active include:

Providing services
Buying and selling goods with a view to profit
Renting property
Earning interest
Managing investments
Receiving other income
Employing someone in connection with the business
Advertising an active business

The Corporation Tax test focuses on whether the company is active or within the charge to tax. It is not simply a test of whether a profit was made.

What does non-trading mean?

Non-trading is often used as a general description rather than a single statutory status.

It may mean that the company:

Has not yet started its intended trade
Has paused customer activity
Has stopped its former trade
Holds investments or property but does not carry on a trade
Receives only non-trading income
Exists to protect a name or hold an asset
Has expenses but no sales

The phrase does not determine the filing result.

A company that is not carrying on a trade may still be active for Corporation Tax because it receives investment income, bank interest or rental income.

It may also have significant accounting transactions and therefore be unable to file dormant accounts at Companies House.

Dormant and non-trading are not interchangeable

The simplest distinction is:

Dormant has specific Companies House and HMRC meanings
Non-trading describes the absence of a trade but may not mean the absence of activity, income or transactions

A company can be non-trading but not dormant.

For example, a company that stopped consultancy work but still receives bank interest is not trading as a consultant. HMRC can still treat it as active because it receives income. The interest receipt is also a significant accounting transaction for Companies House.

The company may need non-dormant statutory accounts and a Company Tax Return even though it issued no sales invoices.

Why the two dormant tests can produce different answers

Companies House and HMRC apply their rules for different purposes.

Companies House considers whether significant transactions occurred during the financial year and what form of statutory accounts must be filed.

HMRC considers whether the company is active or within the charge to Corporation Tax and whether a Company Tax Return is required.

The following situations illustrate the difference.

A company pays only the Companies House confirmation statement fee

This fee can be disregarded for the Companies House dormancy test.

If there is no other activity or income, the company may also be dormant for Corporation Tax.

A company pays an accountancy fee

The fee is normally a significant accounting transaction. The company may no longer qualify as dormant for Companies House for that financial year.

Whether HMRC regards it as active depends on the wider facts. A small preliminary cost before trade begins does not automatically mean trading has started, but the company should not assume the two tests reach the same result.

A company receives bank interest

HMRC identifies earning interest as activity for Corporation Tax purposes.

The receipt is also a significant accounting transaction for Companies House.

The company is unlikely to be dormant under either test for that period.

A flat management company collects service charges

HMRC may treat some flat management companies as dormant for Corporation Tax under its administrative approach.

The company may still have significant accounting transactions and need non-dormant accounts at Companies House.

The service-charge funds can also require separate trust and accounting analysis.

A company owns an asset but has no movements

Merely holding an asset may not create transactions during a particular year, but the tax and accounting position depends on what the company does with it.

Rent, interest, management activity, revaluation, finance costs or disposal can change the result.

A new company that has not started trading

A newly incorporated company does not necessarily start trading on the incorporation date.

HMRC accepts that preliminary activities can occur before trade begins.

Examples may include:

Preparing a business plan
Researching the market
Negotiating possible contracts
Considering finance
Incurring preliminary expenditure while deciding whether to start

The boundary is factual.

Once the company actively provides services, sells goods, advertises an operating business, employs staff for the activity, receives income or otherwise begins business operations, it may become active.

Pre-trading expenses may still need to be recorded and can affect whether dormant accounts are appropriate for Companies House.

The company should record the actual start date and retain evidence rather than automatically using the incorporation date or first invoice date.

A company that has stopped trading

Stopping customer work does not immediately settle the dormancy position.

The company may still need to:

Collect old debts
Pay suppliers
Sell stock or equipment
Settle leases
Pay professional fees
Receive bank interest
Pay employees
Repay loans
Make distributions
Resolve tax liabilities

These are transactions and may continue after the last sale.

The company is usually not dormant for Companies House until an accounting period has no significant transactions other than the permitted exclusions.

For Corporation Tax, HMRC may regard the company as dormant once it has stopped all business activity and has no other income. The final active period still needs to be reported correctly.

Does having a bank account prevent dormancy?

Keeping a bank account open does not automatically prevent dormancy.

Transactions through the account can.

Common issues include:

Bank interest credited automatically
Monthly account charges
Direct debits for software or insurance
Payments to directors
Transfers between group companies
Loan repayments
Refunds

A company intending to remain dormant should review the account and cancel unnecessary activity.

Closing the bank account is not always required, but leaving it unattended can create transactions that change the accounts classification.

Does paying the accountant break dormancy?

An accountancy fee is not one of the narrow transactions that Companies House says can be disregarded.

If the company itself pays the fee, the transaction can mean the company is not dormant for Companies House during that financial year.

Directors sometimes pay the fee personally to avoid movement through the company bank account. That does not automatically solve the accounting position. It may create an amount owed by the company to the director or a capital contribution, which itself needs analysis and records.

The arrangement should reflect the legal substance, not merely the bank statement.

Does owning a rental property mean the company is dormant?

Usually not where the company receives rent, incurs property costs or actively manages the property.

HMRC lists renting property as activity for Corporation Tax purposes.

Rent receipts, mortgage interest, repairs, insurance, agent fees and other movements are also significant accounting transactions.

A property company with a period before its first tenant may have a more nuanced start-date question, particularly where it is acquiring, developing, advertising or preparing the property.

The facts should be reviewed before describing it as dormant.

Does holding investments mean the company is dormant?

Not necessarily.

Managing investments and receiving income can make the company active for Corporation Tax. Dividends, interest, gains, management costs and portfolio transactions can also prevent Companies House dormancy.

Even where a particular receipt is exempt from Corporation Tax, that does not automatically make the company dormant.

Taxability and activity are different questions.

Does a loss-making company count as dormant?

No.

A company can be active and make a loss.

Dormancy is not based on whether revenue exceeds expenses. A company that trades, employs staff, advertises, buys stock or receives income is active even if its accounts show a substantial loss.

The loss may be relevant for Corporation Tax relief, but it does not convert active accounts into dormant accounts.

Does zero turnover mean dormant?

No.

Zero turnover can arise where a company:

Is preparing to trade
Has temporarily paused sales
Receives only investment income
Owns a rental property before the first tenant
Incurs development costs
Has expenses but no sales
Is winding down

Each situation requires a review of income, expenditure and activities.

The correct classification cannot be determined from the sales figure alone.

Companies House filing obligations for a dormant company

A dormant limited company generally still needs to file:

Annual accounts
A confirmation statement
Changes to directors and company secretary
Changes to PSC information
Registered office and registered email updates
Other event-driven filings where relevant

A small company that is dormant for Companies House may be able to file simplified dormant accounts and claim the relevant audit exemption.

Dormant accounts normally contain less information than active-company accounts, but they are still statutory accounts approved by the directors.

The accounts deadline remains important.

For an established private company, annual accounts are normally due nine months after the accounting reference date. Different rules apply to first accounts and changed periods.

Confirmation statements and identity verification still apply

Dormancy does not remove the annual confirmation statement requirement.

The company must still review its registered information and complete the current identity-verification steps for its directors.

PSCs also have their own verification requirements.

Read Companies House Identity Verification: What Directors and PSCs Need to Do and Confirmation Statements After Identity Verification: What Has Changed? for the detailed process.

HMRC filing obligations when a company is dormant

If the company has stopped trading and has no other income, it can tell HMRC that it is dormant for Corporation Tax.

Once HMRC accepts the dormant position, the company generally does not need to pay Corporation Tax or file another Company Tax Return unless HMRC issues a further notice.

There is an important exception.

If HMRC has already issued a notice to deliver a Company Tax Return, the company must normally file the return for that period even if it was dormant.

Ignoring the notice because there was no activity can lead to penalties.

The return and accounts should show the correct position for the period.

What should happen to VAT registration?

If a VAT registered company becomes dormant and does not intend to trade again, GOV.UK guidance says it must deregister for VAT within 30 days of becoming dormant.

If it intends to restart, it may remain registered but must normally continue submitting nil VAT Returns while there is no activity.

The company should also consider:

Final output VAT adjustments
Stock and asset rules on deregistration
Outstanding input VAT evidence
Bad debts
Imports and postponed VAT
VAT on costs incurred while inactive

Dormancy for Corporation Tax does not itself cancel VAT registration.

What should happen to PAYE?

If the company employs people and does not plan to restart in the current tax year, it should consider closing the PAYE scheme properly.

That may involve:

Final payroll submissions
Leaving dates
P45s
Final payment to HMRC
Workplace pension duties
Benefits reporting

Simply stopping wage payments does not close the scheme.

If the scheme remains open, HMRC may continue expecting submissions.

What if the company has outstanding debts or assets?

A company can retain assets or liabilities while not trading, but transactions involving them can affect dormancy.

The directors should review:

Bank balances
Customer debts
Supplier liabilities
Director’s loan accounts
Tax balances
Loans
Property
Equipment
Intellectual property
Investments
Deposits and prepayments

If the company plans to remain dormant, it still needs adequate records and must protect its assets.

If it plans to close, distributions and asset transfers require careful tax and legal treatment.

Dormant or strike off?

A company does not have to close merely because it is no longer trading.

Keeping it dormant may be appropriate where:

The business may restart
The company name has value
The company holds an asset
A transaction or claim remains unresolved
Group planning requires the entity
Closure would create unnecessary cost or tax consequences

Strike off may be considered where the company is no longer needed and meets the legal conditions.

Before applying, directors should consider:

Outstanding debts
Tax returns and payments
Bank accounts
Assets that could pass to the Crown on dissolution
Employee and creditor matters
Recent trading or name changes
Objections from interested parties
Whether liquidation advice is needed

A dormant company still has annual filing costs and director responsibilities. Retaining it indefinitely should be a deliberate decision.

Restarting a dormant company

A company can restart activity.

When it becomes active for Corporation Tax, it must tell HMRC. HMRC guidance says a company should normally notify HMRC within three months of starting its Corporation Tax accounting period.

The company should also:

Reopen or confirm its bookkeeping system
Record the exact activity start date
Register or re-register for taxes where required
Review VAT thresholds and registration
Set up PAYE before paying employees
Consider workplace pension duties
Issue compliant invoices
Update insurance and licences
Check Companies House SIC codes
Prepare non-dormant statutory accounts

Companies House does not require a separate notification merely because the company has restarted. The next non-dormant accounts show the change.

Worked example: no sales but monthly costs

Maple Consulting Ltd stopped taking clients on 30 June.

From July to December, it had:

Monthly bank charges
Software subscriptions
Accountancy fees
A small amount of bank interest

The company made no sales.

It is still unlikely to be dormant for Companies House because it had significant accounting transactions.

It is also likely to remain active for Corporation Tax because it received interest and continued financial activity.

Describing it as dormant based only on zero turnover would be wrong.

Worked example: new company with only subscriber shares and filing fee

Oak Ventures Ltd was incorporated but did not begin business.

The only transactions were:

The issue of subscriber shares on incorporation
Payment of the Companies House confirmation statement fee

Those transactions fall within the narrow Companies House exclusions.

Subject to the full facts, the company may qualify as dormant for Companies House and Corporation Tax.

It must still file dormant accounts and a confirmation statement.

Worked example: property company awaiting its first tenant

River Homes Ltd buys a property, pays legal fees, pays mortgage interest, carries out repairs and advertises for tenants. It receives no rent before the year ends.

Zero rental income does not make the company dormant for Companies House. The purchase and costs are significant transactions.

For Corporation Tax, the point at which the property business begins requires a factual review. The company is undertaking substantial business activity even before the first rent receipt.

The directors should not file dormant accounts merely because the tenant moved in after the year-end.

Common dormancy mistakes

Using zero turnover as the only test

Expenses, income and business activity also matter.

Applying HMRC’s test to Companies House

The definitions differ and must be considered separately.

Ignoring bank interest or charges

Small automatic transactions can change the Companies House accounting position and may create tax activity.

Filing dormant accounts after paying ordinary expenses

Most ordinary costs are significant accounting transactions.

Assuming a loss means dormancy

An active company can make a loss.

Ignoring a notice to file a Company Tax Return

If HMRC has issued a notice, the return normally still needs to be filed.

Forgetting VAT and PAYE schemes

Those registrations continue until they are closed or HMRC confirms otherwise.

Treating a property or investment company as dormant

Rent, interest, investment management and related costs can make the company active.

Forgetting confirmation statements

Dormant companies remain on the register and retain annual Companies House obligations.

Striking off before dealing with assets

Property left in a dissolved company can pass to the Crown.

A practical dormant-company review

Before describing a company as dormant, review the whole financial year.

Check the bank and payment accounts

Look for interest, charges, direct debits, refunds and transfers.

Review income sources

Check sales, rent, dividends, interest, grants and other receipts.

Review expenses

Identify professional fees, insurance, software, payroll, property costs and finance charges.

Review activity without cash movement

The company may have entered contracts, employed staff, provided services, received benefits in kind or incurred liabilities.

Review assets and liabilities

Identify transactions involving property, equipment, loans, investments and director accounts.

Apply the Companies House test

Determine whether any significant accounting transaction occurred.

Apply the Corporation Tax test

Determine whether the company was active, trading, managing investments or receiving income.

Check outstanding notices

Confirm whether HMRC has issued a notice to deliver a Company Tax Return.

Review VAT and PAYE

Decide whether registrations should remain open, be closed or continue with nil reporting.

Document the conclusion

Keep evidence supporting the filing position and the effective date of any change.

Frequently asked questions

Is a company dormant if it has no sales?

Not necessarily. Expenses, interest, investments, property activity and other transactions can prevent dormancy.

Can a dormant company have a bank account?

Yes, but transactions such as interest and charges may affect its status.

Can a dormant company pay an accountant?

The payment is normally a significant accounting transaction for Companies House. The overall accounting and tax effect should be reviewed.

Does a dormant company file accounts?

Yes. It normally files annual accounts and may qualify to use the simplified dormant-company format.

Does it file a confirmation statement?

Yes. Dormant and non-trading companies must normally file at least one confirmation statement every 12 months.

Does a dormant company file a Corporation Tax return?

Not usually after HMRC has accepted that it is dormant, unless HMRC issues a notice to deliver a return. An outstanding notice must not be ignored.

Can a company be dormant for HMRC but not Companies House?

Yes. The tests are different. Some companies, including certain flat management companies, can illustrate this distinction.

Is a property investment company dormant before receiving rent?

Not automatically. Property acquisition, finance, repairs, advertising and management activity can prevent dormancy or show that business has started.

Must a dormant company complete identity verification?

Its directors and PSCs remain subject to the applicable Companies House identity-verification rules because the company still files a confirmation statement.

How long can a company stay dormant?

There is no general maximum period, provided it continues meeting its legal filing and record-keeping obligations.

Use the correct status for each authority

The safest conclusion is not simply dormant or active.

It should state separately:

Whether the company is dormant for Companies House for the financial year
Whether it is dormant for Corporation Tax for the relevant period
Whether VAT and PAYE registrations remain open
Which annual and event-driven filings are still required

That approach prevents the common mistake of applying one label across every system.

Speak to PR Accountants Ltd

PR Accountants Ltd helps directors determine whether a company is dormant, non-trading or active and ensures the correct accounts, tax and Companies House filings are made.

We can assist with:

Dormant company accounts
Non-trading company accounts
Corporation Tax dormancy notifications
Final active-period accounts and tax returns
Confirmation statements
Companies House identity-verification guidance
VAT deregistration and nil returns
PAYE scheme closure
Company strike-off reviews
Restarting dormant companies
Bookkeeping and statutory accounts

If a company has no sales but still has costs, assets or income, review the facts before filing dormant accounts.

PR Accountants Ltd Email: info@praccounting.co.uk Telephone: 0330 043 0792 Mobile and WhatsApp: 07946 617369 Website: www.praccounting.co.uk Facebook: PR Accountants Ltd LinkedIn: PR Accountants Ltd Instagram: @praccountantsuk TikTok: @praccountants

Official guidance

This article provides general information and does not constitute personalised accounting, tax or legal advice. Dormancy depends on the company’s transactions, activities, income, registrations and notices from HMRC. Review the full facts before filing.

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