Bookkeeping for Small Business

Dormant Companies are defined in 2 different ways by Companies House and HMRC:

A Dormant company at Companies House is if any transaction goes through the business, then you are not dormant.  There are exceptions to this such as paying the fee for the Confirmation Statement, changes to shareholding etc. meaning if you have bank charges going through when you haven’t made any sales, then your company is not dormant.

HMRC state that if you are not trading then you are dormant meaning if you have don’t have any trading income or expenses you are classed as dormant with them.

If you have any further questions about dormant companies then please let us know.

This is a question we get asked frequently.  Currently sole traders have to pay personal tax on their profits, Class 2 national insurance on profits over £50,000 at 2% and Class 4 national insurance on profits between £9,501 and £50,000 at 9%.  Sole traders have to pay a payment on account if their annual tax bill exceeds £1000.

Limited companies do not have to pay payments on account or national insurance but have to pay 100% of their corporation tax 9 months and 1 day after the year end at a rate of 19% on profits.

Limited companies can have shareholders unlike soletraders.  When taking the combined personal tax and corporation tax liability for limited companies vs tax and national insurance for soletraders, the rough tipping point is if you have profits of £12,000 or more, it could work out to be more efficient for tax purposes to be a limited company.