What Foreign-Owned UK Companies Need to Consider
Foreign-owned groups sometimes reach a point where a UK subsidiary is no longer needed. The company may either be kept dormant for future use or formally closed and removed from the Companies House register.
These are not the same process.
A dormant company continues to exist as a legal entity and must continue to meet certain Companies House obligations. A company that is formally closed through strike-off or liquidation ceases to exist.
The right option depends on the group’s plans, the company’s financial position and whether there are remaining assets, liabilities, contracts or tax obligations.
Dormant or Closed: What Is the Difference?
A dormant company remains registered with Companies House but is not carrying on business activity.
A closed company is removed from the Companies House register and ceases to exist as a legal entity.
For a foreign-owned group, the decision often comes down to:
Keep the UK company for possible future use → Dormant
No longer need the UK company → Close or strike off
A dormant company can generally remain dormant indefinitely, but it still has ongoing filing obligations.
Making a UK Subsidiary Dormant
A company can become dormant when it stops trading and has no other income or business activity.
For Corporation Tax purposes, HMRC generally considers a company dormant when it is no longer carrying on business activity or receiving income.
However, being dormant for Corporation Tax and being dormant for Companies House are slightly different concepts.
This distinction is important for foreign-owned subsidiaries.
What Happens to Corporation Tax?
When a trading company stops trading, it should notify HMRC that it is dormant for Corporation Tax purposes.
Once HMRC has been notified and the company is treated as dormant, it generally does not need to submit further Company Tax Returns unless HMRC requests one or the company starts trading again.
However, the company must deal with any Corporation Tax liabilities arising from the period before it became dormant.
A final tax return may therefore be required for the last period of trading.
Does a Dormant Company Still Need Accounts?
Yes.
A dormant company must generally continue filing annual accounts and a confirmation statement with Companies House.
If it qualifies as a dormant company for Companies House purposes, it may be able to file dormant accounts rather than full trading accounts.
This means that making a company dormant does not eliminate all compliance work.
The company continues to exist and must remain properly maintained.
What About VAT?
If the UK subsidiary is VAT registered, its VAT position should be reviewed when it stops trading.
If the company does not intend to trade again, HMRC states that it should deregister for VAT within the relevant timeframe.
If the company intends to restart trading, it may instead need to continue submitting nil VAT returns while dormant.
The correct approach therefore depends on whether the company is genuinely being closed down or simply being kept available for future use.
What About PAYE?
If the company has employees and will no longer employ them, the PAYE position should also be dealt with.
This may involve:
- Final payroll
- Employee payments
- PAYE and National Insurance reporting
- Closing the PAYE scheme where appropriate
The company should not leave active payroll registrations in place without reviewing whether they are still required.
Closing a UK Subsidiary
If the foreign parent has decided that the UK subsidiary is no longer needed, the company may potentially be closed through voluntary strike-off if it meets the relevant conditions.
A company can generally apply for strike-off where it has not traded or sold stock in the previous three months and meets the other statutory requirements.
The company must also deal with its affairs before applying.
This includes dealing with:
- Outstanding debts
- Creditors
- Employees
- Tax liabilities
- Bank accounts
- Assets
- Contracts
- Intercompany balances
Final Accounts and Corporation Tax
Before closing the company, its final accounting and tax position should be reviewed.
This can include:
- Preparing final accounts
- Preparing the final Corporation Tax return
- Paying outstanding Corporation Tax
- Settling VAT liabilities
- Clearing intercompany balances
- Dealing with remaining assets
HMRC requires final tax obligations to be dealt with before the company is closed.
For a foreign-owned subsidiary, particular attention should be given to amounts owed to or by the overseas parent.
What Happens to Company Assets?
Assets should be dealt with before the company is dissolved.
These could include:
- Cash
- Equipment
- Intellectual property
- Domain names
- Receivables
- Tax refunds
If assets remain in the company when it is dissolved, they can pass to the Crown.
This is particularly important for foreign-owned companies with money remaining in their UK bank account.
The group should determine how remaining assets will be distributed before applying for strike-off.
What Happens to Intercompany Balances?
Foreign-owned subsidiaries often have balances with their overseas parent, such as:
- Intercompany loans
- Management fees
- Expense recharges
- Interest
- Trade balances
These should normally be reviewed and settled or otherwise dealt with before closing the UK company.
A subsidiary should not simply be struck off while significant unresolved balances remain between the UK company and its parent.
Strike-Off vs Members’ Voluntary Liquidation
For a solvent company, there are generally two main routes to closure:
Voluntary Strike-Off
Often suitable for a simple company that is no longer required and meets the strike-off conditions.
Members’ Voluntary Liquidation
A more formal process that may be appropriate where the company has more complex assets, liabilities or distributions.
The appropriate route depends on the company’s circumstances and should be considered before assets are distributed.
Practical Example
A foreign parent owns a UK subsidiary that has stopped trading.
The company has:
- No employees
- No outstanding customers
- No creditors
- No VAT activity
- £20,000 cash remaining
- An intercompany balance with the foreign parent
The group has two options:
Option 1 – Keep the company:
Settle the outstanding matters and make the company dormant. Continue filing the required Companies House accounts and confirmation statement.
Option 2 – Close the company:
Settle the intercompany balance, deal with the remaining cash and other assets, complete the final tax obligations and apply for strike-off if the statutory conditions are satisfied.
The correct option depends on whether the group expects to use the UK company again.
Common Mistakes
Assuming dormant means no filing obligations
A dormant company still has Companies House filing requirements.
Closing the company before dealing with tax
Outstanding Corporation Tax, VAT or other liabilities should be dealt with before closure.
Leaving money in the bank
Remaining assets can pass to the Crown after dissolution.
Ignoring intercompany balances
Loans and other balances with the foreign parent should be reviewed before closure.
Confusing dormant with dissolved
A dormant company continues to exist. A dissolved company does not.
Dormant or Closure Checklist
Before making the decision, review:
- Has the UK company genuinely stopped trading?
- Does the group intend to use it again?
- Are there outstanding customers or creditors?
- Are Corporation Tax obligations up to date?
- Has the VAT position been reviewed?
- Has PAYE been closed if no longer required?
- Are intercompany balances settled?
- Are all company assets identified?
- Are final accounts required?
- Does the company qualify for strike-off?
- Has the foreign parent approved the proposed approach?
Frequently Asked Questions
What is the difference between a dormant and closed UK company?
A dormant company remains registered with Companies House and continues to have certain filing obligations. A closed company has been removed from the register and legally ceases to exist.
Does a dormant UK company still need to file accounts?
Yes. Dormant companies generally still need to file annual accounts and a confirmation statement with Companies House.
Does a dormant company need to file a Corporation Tax return?
Once HMRC has been notified that the company is dormant for Corporation Tax, it generally does not need to file further Company Tax Returns unless HMRC requests one or the company becomes active again.
Can a dormant UK subsidiary restart trading?
Yes. When the company starts trading again, it must notify HMRC and resume the relevant Corporation Tax and reporting obligations.
Can a foreign-owned UK subsidiary be struck off?
Yes, provided it meets the relevant statutory conditions for voluntary strike-off.
What happens to assets when a company is dissolved?
Remaining assets can pass to the Crown, so the company should deal with its assets before dissolution.
Conclusion
When a foreign-owned UK subsidiary is no longer trading, the group generally needs to decide between keeping the company dormant or closing it completely.
Making the company dormant can be appropriate when the group may need the UK entity again. Closing it may be more appropriate when the subsidiary is no longer required.
Before making either decision, the group should review:
- Corporation Tax
- VAT
- PAYE
- Annual accounts
- Companies House filings
- Intercompany balances
- Company assets and liabilities
- The appropriate closure procedure
Getting these steps right helps avoid leaving tax liabilities, filing obligations or assets unresolved after the UK subsidiary stops trading.
How FKGB Accounting Can Help
FKGB Accounting works with foreign-owned UK companies and international groups on dormant companies, company closures, Corporation Tax, VAT, annual accounts and Companies House compliance.
We can help review the UK subsidiary’s position and manage the accounting and tax steps required before making it dormant or proceeding with closure.
To discuss your UK operations, book a meeting through our online calendar or contact us by email for a confidential consultation: David.levy@fkgb.co.uk
