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Inactive companies and Corporation Tax

There are a number of scenarios where HMRC would consider a company or organisation to be inactive for Corporation Tax (CT) purposes. This is a different categorisation to a 'dormant' company and usually happens when a company has not commenced trading.

A company, whilst not yet active for CT purposes, can still carry out activities (known as ‘pre-trading activities’) or incur costs (known as ‘pre-trading expenditure’).

HMRC’s guidance states that activities or expenditure that are not considered trading by HMRC for CT 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 a company has previously traded and then stops it would normally be considered dormant. A company can stay dormant indefinitely, however there are associated costs and certain filing obligations. This might be done if a company is restructuring its operations or wants to retain a company name, brand or trademark.

Planning note

The costs of restarting a dormant company are typically less than winding up a dormant company and restarting at some future date with a new company.