Trading and non-trading for Corporation Tax explained

HM Revenue & Customs (HMRC) may consider your company or organisation to be 'active' for Corporation Tax purposes when it is, for example, carrying on business activity, trading or receiving income.

But there are a number of circumstances where HMRC would not consider your company or organisation active for Corporation Tax purposes. In this case, your company or organisation is 'dormant' for example - not active or not trading.

HMRC may also deem your unincorporated organisation, such as a members' club, dormant for Corporation Tax purposes if it is active or trading but it's due to pay Corporation Tax of less than £100 for an accounting period.

This guide will help you decide whether your company or organisation is active or dormant and explains what you must do when it becomes active.

On this page:

What is active for Corporation Tax purposes

Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:

  • carrying on a business activity such as a trade or professional activity
  • buying and selling goods with a view to making a profit or surplus
  • providing services
  • earning interest
  • managing investments
  • receiving any other income

This definition of being active for Corporation Tax purposes is not necessarily the same as that used by HMRC in relation to other tax areas such as VAT, or by other government agencies such as Companies House.

It may also not match definitions in the various accounting conventions that are used to prepare audited accounts, such as the Financial Reporting Standards (FRS) issued by the Accounting Standards Board, or the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

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What is not active for Corporation Tax purposes

There are a number of circumstances where HMRC would generally consider your company or organisation not to be active for Corporation Tax purposes.

When your company or organisation has not yet started trading

Generally, HMRC considers that your company or organisation has not yet become active or started trading if it has not yet engaged in any business activity - such as those listed in the section ' What is active for Corporation Tax purposes'. In this context, business activity means carrying on a trade or profession, or buying and selling goods or services with a view to making a profit or surplus.

Your newly-formed company or organisation may not be active for Corporation Tax purposes. However, you may still carry out activities (known as 'pre-trading activities') or incur costs (known as 'pre-trading expenditure') before you officially open your business without HMRC deeming that you have started trading.

Activities or expenditure to do with setting up a business that are not considered trading by HMRC for Corporation Tax purposes include:

  • preliminary activities such as writing a business plan or negotiating contracts
  • preliminary expenditure such as incurring costs with a view to deciding whether to start a business

When your company or organisation has previously traded but has stopped trading

HMRC generally considers a company or organisation to be dormant for Corporation Tax purposes if it's no longer carrying out any business activity.

If your business is a company, you should normally already have notified Companies House that your company is dormant (see the following section).

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What does dormant for Corporation Tax mean

Dormant is a term that HMRC and Companies House use for a company or organisation that is not active, trading or carrying on business activity. But HMRC and Companies House use the term dormant in slightly different ways.

For Corporation Tax purposes, HMRC views a dormant company as a company that's not active, not liable for Corporation Tax or not within the charge to Corporation Tax.

A dormant company can be, for example:

  • a new company that's not yet trading
  • an 'off-the-shelf' or 'shell' company held by a company formation agent intending to sell it on
  • a company that will never be trading because it has been formed to own an asset such as land or intellectual property
  • an existing company that has been - but is not currently - trading
  • a company that's no longer trading and destined to be removed from the Companies Register

When HMRC will treat clubs and companies as dormant

HMRC may also deem your club, society or company dormant for Corporation Tax purposes if it's active but meets specific criteria such as:

  • if your club or society has Corporation Tax due to be paid of £100 or less (known to HMRC as a 'small' club)
  • if your company is a flat management company that has been set up to manage a block of flats, which has no income other than interest income under £1,000 that's taxed at source

If HMRC is aware that your company or organisation meets these criteria, they will write to you proposing to make your company or organisation dormant. This is known to HMRC as a 'concessional exemption'.

Read more about when HMRC may treat your company or organisation as dormant

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Telling HMRC that your company or organisation has ceased to be dormant and is now active

If your new limited company or organisation is not yet active - in other words, it's not yet carrying on business activity or trading - you'll need to tell HMRC when it does become active.

How to notify HMRC when your company or organisation becomes active

If your limited company has been dormant but is now active, you must tell HMRC within three months of starting your tax accounting period. The best way to do this is to use HMRC's online registration service.

Tell HMRC your limited company is active now

Alternatively you can provide the information about your company to HMRC in writing.

Find out what information you need to tell to HMRC

Unincorporated organisations must also tell HMRC if they become active. Follow the link below to find out more.

Clubs, societies, organisations and Corporation Tax

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More useful links

Corporation Tax glossary

Deadlines and requirements for Corporation Tax

Download more information about dormant companies from the Companies House website (PDF 383K) (Opens new window)

Corporation Tax penalties

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