Consider the following hypothetical scenario. Company A incorporates in the UK on day D. Company A makes a purchase to present a product at a trade show and gauge market interest. It attends the show, which does not go well for lack of potential buyers, and subsequently gets a full refund for that purchase. All events, purchase, attendance, and refund, happen within a year of incorporation on day D. Company A has no other activities or transactions.
Companies House suggests that a company is dormant if it had no "significant transaction":
A significant transaction is one that the company should enter into its accounting records. Providing no such transaction has occurred then the company can have dormant status.
HMRC has a definition of a dormant company:
Your company is usually dormant for Corporation Tax if it:
- has stopped trading and has no other income, for example investments
Trading includes buying, selling, renting property, advertising, employing someone or getting interest.
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.
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
Would the purchase and refund enter the accounting records, and so would company A count as not dormant for Companies House?
Would the purchase, trade show attendance, and refund count as a trading activity and not as a preliminary expenditure for HMRC, and so would company A count as not dormant for HMRC?