Starting a company is an exciting venture, but the reality of business is that there may be periods when your company isn't actively trading or generating revenue. This could be due to various reasons such as taking a full-time job, falling inside IR35, or not finding a new contract. If you find yourself in such a situation, here's what you need to know.
Firstly, it's important to understand that there are no immediate penalties or fines if your company isn't trading or making revenue. Many business incur costs for years before making any revenue. Equally many businesses (especially freelancers and contractors!) have 'lumpy' revenue due to the seasonal nature or difficulty of securing new clients / acceptable contracts.
When you first form your company, you will be asked to choose a 'trading date' as the date of company formation. In general, you can choose this date to be from today, as even if you aren't generating revenue immediately, by incorporating immediately there are several important steps can take to set-up your business. These steps are crucial in order to get paid, and pay yourself tax efficiently.
For example you should:
During this initial setup period, incurring costs without generating revenue is common and not problematic.
Periods of inactivity are typical, especially in freelancing or contracting due to taking an inside IR35 contract or not finding a new client/contract. During these times, you can still use your company to manage finances efficiently. For example, you can pay yourself through payroll and dividends (if you have the funds to do so), and if you're registered for VAT you can continue to reclaim VAT and submit your VAT returns.
If your company experiences a prolonged period of inactivity, such as when you accept a full-time job, 12 month+ IR35 contract or can't find new work an extended period of time, you have several options:
1. Keep the Company Active: You might find it tax-efficient to keep the company open and continue to remunerate yourself through it.
2. Leave the Company Dormant: If the company has no trading activity, you can register the company as dormant. This keeps the company open, but in HMRC's eyes it is entirely inactive (so not making any revenue or buying any goods/services).
3. Close the Company: If you decide that the company no longer serves your needs, you can close it down.
If you find yourself in this situation, it's best to speak with an accountant as what's best for one person might not be suitable for another. Factors such as your current employment status, financial needs, and future business plans will influence the best course of action.
If you're a Mighty client, you can always contact us to arrange a call within the support section of the Mighty platform.
If your company isn't trading or making revenue, there are no immediate negative consequences. You have the flexibility to set up your business, manage periods of inactivity, and make decisions that best suit your evolving circumstances. It's advisable to seek professional guidance tailored to your specific situation to ensure you make the most informed decisions for your business.
By understanding these options, you can manage your business effectively, even during periods of inactivity, and be prepared for future opportunities as they arise.
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