- Introduction to Corporation Tax
- Corporation Tax for new companies and organisations
- Trading and non-trading for Corporation Tax explained
- Deadlines and requirements for Corporation Tax
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 in each case.
On this page:
- What is active for Corporation Tax purposes
- What is not active for Corporation Tax purposes
- What does dormant for Corporation Tax mean
- How to notify HMRC that your company or organisation is dormant, or has ceased to be dormant and is now active
- More useful links
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.
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. 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. 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 a business activity or if it's no longer active.
If your business is a company, you should normally already have notified Companies House that your company is dormant (see the following section).
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'.
Unincorporated organisations and Corporation Tax
How to notify HMRC that your company or organisation is dormant, or has ceased to be dormant and is now active
When your company becomes dormant, or when your company ceases to be dormant, you must notify HMRC. This is in addition to any requirement to notify Companies House.
How to notify HMRC when your company or organisation is dormant
If your new company or organisation has not yet started trading you should complete form CT41G (Dormant company insert) and send it to your Corporation Tax Office.
If your company or organisation has previously been trading or active but is now not active, you should contact your Corporation Tax Office.
How to notify HMRC when your company or organisation ceases to be dormant
If your new company or organisation has been dormant but is now active, you should complete form CT41G (New company details) and send it to your Corporation Tax Office.
If your company or organisation was active before it became dormant and is now active again, you should contact your Corporation Tax Office.
Go to form CT41G (New company details) and explanatory notes
Go to form CT41G (Dormant company insert) and explanatory notes
Find your Corporation Tax Office
More useful links
Deadlines and requirements for Corporation Tax
Download more information about dormant companies from the Companies House website (PDF 383K)
