Whether you’re retiring, returning to full-time employment, switching to be a sole trader or looking for a change, do you know how to close your limited company?
There are many reasons to close your limited company and how you do it depends on whether it is solvent or insolvent. Either way, if it’s limited you cannot simply just close down and walk away.
Making sure you use an experienced tax adviser will also ensure you pay the correct tax and close down correctly.
How to close your limited company
A limited company is a legal entity and as a result, directors of limited companies must keep to the rules if it’s closing. It’s one of the many areas limited company directors need to be fully aware of – along with others we’ve advised about before.
It doesn’t matter the reason for closing your business, you must tie up all the legal loose ends. This includes settling outstanding bills, collecting money owed and paying for running costs before it is legally wound up. These costs, such as paying your accountant for final returns, are allowable business expenses, so they will reduce the final Corporation Tax bill.
As a director, it is your duty to ensure you pay the bills and collect what you’re owed or you could face legal action as it’s a dereliction of your duties. Informing the relevant authorities is also essential.
HMRC needs to know that you’re no longer trading. They need this information to ensure they don’t issue Corporation Tax reminders. If you file company tax returns, you’ll still need to file one online. If you have never received a “notice to deliver a company tax return” you can contact HMRC to tell them your company is dormant by phone or post.
Any VAT registered companies need to deregister using a VAT 7 Form. You must complete a VAT return that takes into account leftover stock or information about equipment owned by the business.
Companies operating a PAYE scheme, need to let HMRC know that it’s no longer operating and needs closing down. HMRC has information on how to do that here, but if you’re a Concept Accountancy client and we run your PAYE scheme, speak to us first.
Capital Gains Tax
Freelancers operating as a limited company may need pay Capital Gains Tax if they keep any equipment, such as a laptop. That’s because, legally, such items are owned by the limited company and not the individual.
An essential aspect of winding down a limited company is to take out business insurance. If your company already has insurance, such as professional indemnity, don’t stop it when you decide to close. That’s because former clients could potential make a claim, so take out run-off cover.
Insolvent or solvent?
When closing your company, consider whether it’s solvent or insolvent. To decide, ask yourself:
- Can the company pay its debts on time?
- Does it have more assets than liabilities?
If the answer is “yes”, the company is solvent and there will be assets to distribute to shareholders. If the answer’s “no”, your company is insolvent.
Closing a solvent limited company
There are two ways to close a solvent limited company. These are:
- Closure/informal strike-off
- Members Voluntary Liquidation
A company director should complete a “DS01 striking off form” to strike a company from Companies House. This asks for details such as your company registration number (CRN) and the names and signatures of all directors. It costs £8 to complete online or £10 on paper.
Once received, Companies House publishes a notice in an official public record, which is known as The Gazette. This provides any third parties the opportunity to object to the closure.
If there are no objections, Companies House confirms the closure once three months pass.
Any profits retained after closing your company should be distributed fairly to shareholders. Make sure you choose the most tax-efficient way of doing that.
Members Voluntary Liquidation
The MVL can be a tax-efficient way of unlocking cash from the company to distribute remaining profits to shareholders as capital. This is different from dividends. The main reason for a MVL liquidation is all assets can be extracted through Capital Gains Tax rather than Income Tax. It means more money for directors.
But the cost of closing this way is expensive. So, speak to an accountant first because while it seems great on paper, it could end up costing you more than choosing to strike off.
Closing an insolvent limited company
When directors and shareholders agree that your company is insolvent, a Creditors’ Voluntary Liquidation is required to close it. This means company assets are allocated to the parties that are owed money.
Before a CVL is agreed, 75% of directors must approve to this measure. Once agreed, a director must speak to a licensed Insolvency Practitioner. The timescale depends on a variety of factors, such as the size of business and the complexity of assets and debts.
Once completed, the business is struck off from the Companies House register.
If any creditor files for a winding-up petition, a court orders the business to be wound up. This is called Compulsory Liquidation.
What should I do?
Our advice is always to get professional help. Getting anything wrong could end up costing you financially and in other ways if you don’t follow the rules. Contact our team today if you’re looking for advice. Fill in the form below or use our contact page.