A common misconception we encounter is whether a company is defined as trading or non-trading in the eyes of HMRC.
A company is considered by HMRC not to be active when the company has not yet become active or started trading. The 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 – to do with setting up a business – 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 the company becomes active (usually after carrying on a business activity), HMRC must be notified. This needs to be done within 3 months of a company starting their tax accounting period. The best way to notify HMRC is using the online registration service.
When a company has previously traded and then stops it would normally be considered dormant. A company can stay dormant indefinitely, however, there are costs associated with doing this and certain filings must still be made to Companies House.
This might usually be done if for example a company is restructuring its operations or want to keep hold of a company name, brand, or trademark. The costs of restarting a dormant company are typically less than starting from scratch.
Source Informanagement