Most small businesses collect accounts they no longer use: a savings account opened for a tax reserve and then forgotten, a second current account from a bank switch, nominal codes created for a one-off project, hundreds of customers who bought once. Dormant accounts are harmless until someone posts to one by mistake, a direct debit keeps running on an account nobody reconciles, or a small balance sits unexplained in the balance sheet for years.
This guide covers two kinds of dormant account: bank accounts the business no longer needs, and ledger records (nominal codes, customers and suppliers) that have stopped being used. If you are looking for the Companies House meaning, a company that is not trading, see dormant company accounts.
Closing a business bank account
Closing the account at the bank is the last step, not the first. Work through it in this order:
- Move every payment off it. List the direct debits, standing orders and card subscriptions that use the account, then switch them to the account you are keeping. Tell customers who pay by bank transfer, and update the bank details printed on your invoice template.
- Wait one full cycle. Leave the account open for at least one month (a quarter if you have quarterly direct debits) so you can see whether anything still arrives or leaves.
- Reconcile to the final statement. The balance in your books must agree with the bank’s figure, including any interest credited or charges taken on closure.
- Transfer the remaining balance to the continuing account and record it as a transfer between bank accounts, not as income or expense.
- Ask the bank for a closing statement showing a nil balance and keep it with your records. HMRC can ask to see bank statements for the periods covered by a return, so keep the statements for the account’s whole life, not only the last one.
- Mark the bank account inactive in your software once the nominal balance is zero.
| Check | Why it matters |
|---|---|
| Direct Debit mandates cancelled or moved | A collection on a closed account fails and the supplier may charge you |
| Bank feed disconnected | Stops a feed from importing old or duplicate lines later |
| Invoice template updated | Customers keep paying into the account you are closing |
| Final interest posted | A few pence left unrecorded will stop the account reconciling to nil |
Retiring nominal codes you no longer use
A chart of accounts grows by accident. A code becomes dormant when it has had no postings for a year or more, or when it duplicates another code. Before you retire one:
- Check the balance. A balance sheet code with a balance cannot simply disappear. Journal it to the correct account with a clear narration, for example “Reclass old deposits account to supplier prepayments”.
- Check the history. Profit and loss codes with postings in the current or comparative year must stay visible until both years are closed, otherwise your comparatives change.
- Make it inactive, do not delete it. Most accounting software lets you hide a code from posting while keeping its history in reports. Deleting can break the audit trail for past VAT returns and year-end accounts.
- Remove it from bank rules and templates. A hidden code that a bank rule still uses will produce errors or, worse, silent postings.
The clean-up guide for the chart of accounts explains how to decide which codes to merge.
Dormant customers and suppliers
Customer and supplier records are different from nominal codes because they carry contact details, bank details and open balances.
- Run the aged debtors and aged creditors reports first. A dormant customer with an old credit balance, or a supplier you have overpaid, needs investigating before you hide the record; see old customer credit balances and supplier debit balances.
- Deactivate rather than delete. You may need the record to issue a credit note, answer a VAT enquiry or recognise a returning customer.
- Archive bank details of dormant suppliers. An inactive supplier whose bank details can still be paid is an easy target for invoice fraud.
- Note personal data. Contact details for individuals are personal data, so delete or anonymise what you no longer need once your record-keeping period has passed.
A yearly routine
Dormant accounts are easiest to deal with once a year, straight after the year-end close:
- export a list of nominal codes with no postings in 12 months;
- list bank accounts with no transactions in the last quarter;
- list customers and suppliers with no activity in 18 months and a zero balance;
- decide, deactivate and record what you did in the year-end file.
Keeping the active lists short makes coding faster and mistakes rarer, and it makes the balance sheet easier to review. If you are moving to new software, it is also the right moment to leave dormant records behind; see opening balances when changing software.