Closing a dormant company bank account may seem straightforward once your limited company has stopped trading. However, withdrawing the remaining money or closing the account without planning can create tax, accounting and compliance problems. Bank interest may affect dormant status, outstanding bills still need paying, and the way you withdraw funds can determine the tax treatment. In this episode, we explain what HMRC and Companies House mean by dormant, why timing matters, how director’s loans and dividends are treated, and what to check before closing your company’s bank account.
About this episode
Many company directors assume that when trading stops, their company automatically becomes dormant. Unfortunately, it is not always that simple.
HMRC and Companies House use different tests for dormancy. Meanwhile, the company may still have cash in its bank account, outstanding liabilities or continuing filing obligations.
We look at the practical decisions involved in managing a dormant company bank account, including whether to leave money in the business, how to deal with remaining cash and why withdrawing everything immediately can create problems.
The aim is to help you avoid unnecessary complications and make informed decisions before taking action.
What does dormant actually mean?
One of the biggest misunderstandings is assuming that a company becomes dormant as soon as it stops trading.
For HMRC, dormancy for Corporation Tax generally means the company is no longer trading and has no other taxable income.
Companies House uses a different test. A company is normally dormant for Companies House purposes when it has no significant accounting transactions during the financial year, apart from certain permitted exceptions.
This distinction matters because a company may have stopped selling products or providing services but still be carrying out transactions that affect its reporting position.
For a fuller explanation, see our Dormant Company Accounts guide.
Bank interest can affect dormant status
A bank account holding money after trading stops can create an unexpected problem: interest.
Even a small amount of interest is income. For HMRC purposes, receiving bank interest can mean the company is no longer considered dormant for Corporation Tax.
It is important to check whether your company bank account earns interest and whether any interest has already been credited.
A non-interest-bearing account may help avoid future interest income. However, moving money between accounts can itself create accounting transactions relevant to Companies House dormancy. It is worth checking both sets of rules before making changes.
You should also consider whether giving up interest is financially worthwhile.
Dormant companies still have filing obligations
Stopping trading does not mean your limited company disappears.
While the company remains registered, you will normally still need to deal with Companies House requirements, including:
- Filing an annual confirmation statement.
- Submitting annual accounts, with dormant accounts available where the company qualifies.
- Maintaining appropriate company records.
- Keeping registered office and company information up to date.
Failure to meet the relevant filing obligations can lead to penalties or other enforcement action.
Dormancy changes the reporting requirements that apply. It does not automatically remove your administrative responsibilities.
Why closing your company bank account too early can cause problems
Imagine that your company has stopped trading and still has money in its bank account.
You decide to transfer the entire balance out and close the account.
A few weeks later, an accountancy bill arrives. Then there is a Companies House fee or an outstanding Corporation Tax payment.
The company still owes money but no longer has funds available to settle its obligations.
You may find yourself putting money back into the business simply to pay bills that could have been anticipated.
Before withdrawing the remaining balance, review all known and reasonably expected liabilities. Settle what is due and plan for any future costs.
However, do not confuse closing the bank account too early with leaving it open after the company is dissolved. When a company is being formally struck off, remaining assets and bank balances must be dealt with before dissolution. Money left in the account can pass to the Crown.
How can you take money out of a dormant company?
Once outstanding liabilities have been identified, you can consider how the remaining funds should be treated.
There is no single approach that works for every company. The correct treatment depends on the company’s financial position, accounting records and circumstances.
Repaying a director’s loan
If you previously lent money to your company, the company may owe you money through your director’s loan account.
Repaying a genuine outstanding loan balance can be a straightforward way of returning money you previously provided to the business.
However, check the director’s loan records and confirm the actual amount owed before arranging repayment.
Paying a dividend
Dividends are another possibility, but a company must have sufficient distributable profits before declaring them.
A healthy bank balance does not necessarily mean the company has enough profits to pay a lawful dividend.
“Cash and profit, unfortunately, are not the same thing.”
Paying a dividend without sufficient profits can create serious consequences, including repayment obligations and additional accounting complications.
Dividends must also be properly declared and recorded. The transaction may affect whether the company meets the Companies House dormancy test.
For more guidance, listen to our episode on Dividends and the Director’s Loan Account.
Capital treatment when closing a company
Some shareholders may be able to receive money as a capital distribution when their company is formally closed.
For qualifying distributions made in anticipation of a company being struck off, the rules can permit capital treatment where the total qualifying distributions do not exceed £25,000 and the relevant conditions are met.
This is not an automatic tax saving. Capital treatment depends on the circumstances, and Capital Gains Tax is not always lower than the Income Tax that might otherwise apply.
For larger balances, or where you are uncertain about the correct treatment, professional advice is particularly important.
Checklist before closing a dormant company bank account
Before you withdraw the balance or close the account, work through these questions:
- Has the company genuinely stopped trading?
- Have all outstanding liabilities been identified?
- Is the bank account earning interest?
- Have enough funds been retained or arrangements made for future costs?
- Is there a genuine director’s loan balance to repay?
- Are sufficient distributable profits available for any proposed dividends?
- Could capital treatment apply if the company is being formally closed?
- Do you understand the remaining HMRC and Companies House filing obligations?
These checks can help you avoid making a seemingly simple banking decision that creates unnecessary financial or compliance problems.
FAQs
Can a dormant company have a bank account?
Yes. A limited company can retain a bank account while dormant. However, interest income or significant transactions may affect its dormant status for HMRC or Companies House purposes.
Does bank interest affect dormant company status?
Yes. Interest can mean the company receives taxable income, which may affect dormancy for Corporation Tax. Transactions recorded in the company’s accounting records may also affect Companies House dormancy.
Can I withdraw all the money from a dormant company’s bank account?
You should first check outstanding liabilities and determine the correct accounting and tax treatment of the withdrawal. Company cash does not automatically belong to the director personally.
Can a dormant company pay dividends?
A dividend may be possible where the company has sufficient distributable profits and follows the correct procedures. However, paying it creates an accounting transaction and may affect Companies House dormancy.
What happens to money in a company bank account after dissolution?
When a company is dissolved, money remaining in its bank accounts may pass to the Crown as bona vacantia. Company assets should therefore be dealt with properly before dissolution.
Can I take £25,000 out of a company as capital?
Qualifying distributions made in anticipation of strike-off may receive capital treatment where total qualifying distributions do not exceed £25,000 and the relevant legal conditions are met. This is not a general tax-free allowance or an automatic entitlement.
Episode Timecodes
- 00:00 – Closing a dormant company bank account: introduction
- 00:53 – What dormant actually means
- 01:19 – HMRC and Companies House dormancy rules
- 01:45 – The hidden problem with bank interest
- 02:06 – Interest-bearing and non-interest-bearing accounts
- 02:24 – Companies House filing obligations
- 02:51 – Why closing the account too early causes problems
- 03:11 – Outstanding bills and Corporation Tax liabilities
- 03:39 – Planning for future company costs
- 04:01 – Repaying a director’s loan account
- 04:16 – Dividends and distributable profits
- 04:55 – Dividends and dormant company status
- 05:15 – Capital distributions and the £25,000 limit
- 05:36 – Checklist before closing the bank account
- 06:15 – Tax and compliance consequences
- 06:42 – Further support and the I Hate Numbers book
Related episodes
- Dormant Company Accounts: Companies House and HMRC Rules
- Director’s Loan Account and Dividends Explained
- Dividend Paperwork: Board Minutes, Vouchers and Legal Compliance
Key takeaway
Closing a dormant company bank account involves more than transferring money and shutting the account.
Check whether the company really qualifies as dormant, understand any outstanding liabilities, and establish the correct treatment for money being withdrawn.
Taking time to plan can protect you from unnecessary tax complications, filing problems and the frustration of having to correct decisions later.
About the Podcast
The I Hate Numbers podcast, presented by Mahmood Reza, helps business owners understand accounting, tax, finance, profit, cash flow and business planning in a practical way. We simplify financial topics so you can make better decisions and feel more confident with your numbers.
You can also watch more practical finance and tax support on the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.
Further Support
Tax, accounting and company closure support:
Contact I Hate Numbers to discuss your circumstances.
I Hate Numbers book:
https://www.ihatenumbers.co.uk/i-hate-numbers-book/
Podcast:
https://www.ihatenumbers.co.uk/simplifying-accounting-and-tax-i-hate-numbers-podcast/
Website:
https://www.ihatenumbers.co.uk