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.
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Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:
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.
There are a number of circumstances where HMRC would generally consider your company or organisation not to be active for Corporation Tax purposes.
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:
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).
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:
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 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'.
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.
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.
Alternatively you can provide the information about your company to HMRC in writing.
Unincorporated organisations must also tell HMRC if they become active. Follow the link below to find out more.