The Difference Between Dormant and Non-Trading Companies
The Difference Between Dormant and Non-Trading Companies
In the UK, businesses can often find themselves in a position where they are not actively trading. While terms like “dormant” and “non-trading” are used interchangeably by some, they have distinct meanings under UK law. Misunderstanding these differences can lead to incorrect filings and potential penalties. In this article, we’ll explore the difference between dormant and non-trading companies in detail to help you better understand their implications and obligations.
What Is a Dormant Company?
A dormant company is a registered business that has had no significant accounting transactions during its financial year. For a company to qualify as dormant, it must not engage in financial activities such as:
- Buying or selling goods or services.
- Paying employees or salaries.
- Earning interest on investments.
- Receiving or paying dividends.
That said, a few minor transactions are permitted without disqualifying the company from dormant status. These include:
- Paying Companies House filing fees.
- Paying late filing penalties.
Dormant companies are often used strategically, such as:
- Startups in pre-trade phase: Registering a company name to secure it but not starting operations yet.
- Asset or IP holding vehicles: Holding intellectual property, trademarks, or other assets for tax or operational purposes.
- Temporary inactivity: Pausing trading while maintaining the company for future use.
What Is a Non-Trading Company?
A non-trading company is a business that is not currently trading but has some financial activity. Unlike dormant companies, non-trading companies might engage in certain transactions, such as:
- Paying office rent or utility bills.
- Maintaining a bank account.
- Settling existing debts or obligations.
- Paying service fees, such as accounting or professional advice.
Non-trading companies are not classified as dormant because they have reportable financial activity.
Non-trading companies typically fall into one of these categories:
- Businesses in transition: A company restructuring, waiting for a new direction, or winding down operations.
- Operational pause: Businesses operating minimally without active trade, such as maintaining office space or legal requirements.
Key Differences Between Dormant and Non-Trading Companies
| Aspect | Dormant Company | Non-Trading Company |
| Trading Activity | No significant transactions | Minimal financial activity, but not trading |
| Examples of Activities | Holding intellectual property, securing a name | Paying rent, settling debts |
| Accounts Filing | Dormant accounts with Companies House | Full accounts, reflecting financial activity |
| Corporation Tax | No tax due unless dormant for tax purposes | Tax obligations may apply depending on activity |
| Purpose | Inactive or paused with no financial movement | Limited financial activity without trade |
