Podcast transcription with introduction removed
What is a dormant company?
The first thing should be, what is a dormant company? A dormant company is effectively a limited company that has no financial trading. You’ll set up a limited company exactly the same as you would do if you intended on trading through it. You can still talk to people about the limited company, you can still send an email about it, that kind of thing, but it cannot have any financial trading. As soon as you set up a bank account or the limited company buys something, or it receives some money, it is then trading, so a dormant limited company is effectively a limited company that exists only in name and on obviously the Companies House register. It has no activity at all.
What do you need to do when you have a dormant company?
If you have a dormant company, what do you need to do? Well, you will still need to maintain the records with Companies House, so you’ll still need to file a confirmation statement on the anniversary of the date that it was incorporated, and it will still need to submit dormant accounts anyway to Companies House. You shouldn’t need to submit anything to HMRC, because it has no activity, so there’ll be no tax to declare on there.
What are the advantages of having a dormant company?
What would the advantages of having a dormant company be? Why would you need to have one? Sometimes people set up a dormant company to secure a name, so if you’ve got a particular trading name that you want, you may want to set up a limited company so that no-one else can set up a company with the same name. I know for my business, I set up a company at the same time that I went self-employed, so my limited company is actually the same age as my business has been around, even though I haven’t traded through that company for that same number of years.
Now, obviously I do need to say that having the limited company is not the same as having a trademark, so as well as if you have a particular name that you want to keep hold of, you may also obviously want to look at social media channels, maybe even obtain a trademark, but having a limited company is another way of having that name on record, should someone else be doing a search.
The second advantage of having a dormant company, kind of like what I said what I did when I started my business is it means you’ve got that limited company ready, should you need it. Now, I’ll go through all of this kind of thing in more detail in a future episode, but you can’t trade through a limited company if that limited company doesn’t exist. Limited companies are fairly quick to set up, you can normally do so in a couple of days, but if you’ve got the limited company there, it’s ready the second you need it, and that’s obviously also an advantage of having a dormant company.
What are the disadvantages of having a dormant company?
Now, the disadvantages, the main one is the fact that it does still have that admin. You do still need to submit a confirmation statement, which has a fee, and if you get an accountant to file your dormant accounts for you, you will obviously need to pay for those as well, so it’s not a case of setting the limited company up and then you can just walk away. It will still need to be maintained on that sort of yearly basis. The second disadvantage is that it will be on record, so anyone can go on Companies House and search for you. They can see that it’s dormant or they can search for your name, and they will see that a dormant company is attached to it, and that will mean that if say the registered office is your home address, your home address will then be on public record and people will be able to see that.
Summary
That’s kind of a whistlestop tour of dormant companies, so the answer to the question of can I set up a limited company and not use it is yes, and I’ve just basically spent five minutes saying that, so it’s absolutely fine to have a limited company and not immediately trade through it, but just be aware, as I said at the beginning, it cannot have any sort of financial activity. You can’t set up a limited company, pay for a couple of things, then decide to be self-employed, and assume that the limited company will then be dormant, because it will then have financial activity for that year, so it will then need to file accounts to HMRC and it will be financially active for that financial year. It can then become dormant in the following year.
