What Contractors and Freelancers with a UK Limited Company Need to Know About Dormant Companies

"A dormant company is like a parked car: it's not going anywhere, but it's not off the road either."

If you’ve ever taken a break from contracting or freelancing, you’ve probably wondered: what do I do with my limited company? Should I close it? Keep it? Leave it as-is and hope it doesn’t cost me a fortune?

Let me tell you a quick story. A friend of mine, Alex, paused his contracting work during COVID. He was planning to get back to it in six months. But life happened. Six months turned into two years. His company was still sitting there, open, inactive. He hadn’t filed anything. HMRC wasn’t pleased. Neither was Companies House. Penalties followed.

All of that could’ve been avoided. So let’s break it down and make sure you don’t end up like Alex.

What does it mean for a company to be dormant in the UK?

When a company is dormant, it means it’s not doing business. It’s not trading, buying, selling, earning income, or paying salaries. In the eyes of Companies House, it’s basically "asleep."

But it’s still on the books. It still legally exists. And you still have to do a few things to keep it compliant.

Can a dormant company still own assets?

Yep! Your dormant company can still hold onto things like cash in the bank, a domain name, a laptop, even intellectual property. It just can’t do anything with them. The moment you use those assets to earn income? You're trading again. And dormancy ends.

What’s the difference between a dormant company and an inactive one?

They’re super similar, but here’s the kicker: a non-trading (inactive) company might still have small financial activity, like paying for a web domain. But a dormant company must have zero significant transactions. Clean slate.

Why not just shut it down?

Good question! There are a few solid reasons to keep it dormant instead:

- You might want to contract again later (and save the hassle of re-registering).

- You want to keep your business name.

- It holds valuable things (like a trading history or good credit).

Think of it like putting your company in storage. It's there if and when you need it.

What paperwork do I still need to file?

Even if your company is dormant, Companies House still expects:

- Dormant company accounts (super simple, just a few pages).

- Confirmation statement (CS01) once a year to confirm your company details.

If you're registered for VAT or PAYE, there’s more admin unless you deregister (more on that soon).

Do I have to pay Corporation Tax if my company is dormant?

Nope. No trading means no profits. No profits means no Corporation Tax. But you still need to tell HMRC that your company is dormant by submitting a return or using their online form.

If you don’t? They’ll assume you owe tax and start sending those scary brown envelopes.

What about VAT and PAYE?

If you’re VAT registered and no longer trading, you should deregister within 30 days unless you plan to trade again soon. Otherwise, you still need to file nil VAT returns every quarter. It’s a pain.

Same goes for PAYE. If you’re not paying yourself a salary anymore, either shut the scheme or submit nil EPS (Employer Payment Summary) forms monthly.

Can I change directors or shareholders while the company is dormant?

Yes! Admin changes like appointing or removing directors, or issuing shares, are totally allowed. Just don’t start trading again unless you want the dormancy to end.

Can I keep my business bank account open?

Yes, but be careful. If your bank charges fees or you accidentally make a transaction, you might trigger activity that ends your dormant status. I recommend keeping it open but inactive. Just don’t touch it.

How do I make my company dormant?

If you’ve stopped trading:

1. Stop all trading activity.

2. Tell HMRC by submitting a Company Tax Return and ticking the box that says you're dormant.

3. Deregister for VAT and PAYE if needed.

4. File dormant accounts and the confirmation statement with Companies House.

Boom. Done.

How do I bring a dormant company back to life?

Easy:

- Start trading again (buying, selling, earning).

- Tell HMRC you're active (re-register for Corporation Tax if needed).

- Restart VAT or PAYE schemes if you're hiring or invoicing again.

That’s it. Dormant today, active tomorrow.

Final thoughts: Should you go dormant or dissolve?

If you're done for good, close the company. It's cleaner.

But if you're just taking a break or might contract again, dormancy is a smart move. It keeps the door open without racking up major costs.

One last tip?

Speak to your accountant before going dormant. Or even better, speak to someone who knows the contractor world. Dormancy might be a small decision, but it can save (or cost) you a lot down the road.

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