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Deciding to close your limited company isn’t easy, but that doesn’t mean the process should be difficult. We’ve put together this guide to closing your limited company the right way.
Running a limited company can be a rewarding, lucrative way to work. But, sometimes you might need to take the decision to stop trading or simply take a break.
Maybe you’re thinking about closing your company due to retirement or because you’ve decided to go back to full-time employment. Maybe you want to close for good, or just take a break from running your business for a while. Whatever your reason, it’s important that you take the right route to closure.
We’re here to help, with this guide to closing a limited company we’ll take you through the whole journey.
First, consider your options
If you think that you might want to restart your limited company in the future, it could be worth making your limited company dormant, rather than closing fully (we look at how to do this further down).
Of course, if you’re sure that the business has come to an end, then permanent closure is the way to go.
Assess your business’s health
Before you enter the process of closing your limited company, you’ll need to assess whether your business is solvent or not. What do we mean by this? Well, your business is solvent if:
If you can’t pay your bills or your assets don’t cover your liabilities, then your company is insolvent.
Making this distinction is essential, as your solvency (or insolvency) will dictate your route to closure.
If you’re solvent
So, you’ve looked at your business finances, and you know you’re solvent. You have two routes to cease trading as a limited company. They are Dissolution (also known as striking off) or Members’ Voluntary Liquidation (MVP). Let’s look at each in turn:
Dissolving, or striking off, your limited company is the easiest choice if you have no intention of trading though the company anymore, and there is a cash surplus.
There are some stipulations, though. You must not have traded or sold stock for three months, changed the company name in the last three months, or been threatened with insolvency. Finally, the capital gains released must be less than £25,000.
There is also a rigid process to go through when dissolving your limited company. You’ll need to submit a DS-01 to Companies House, signed by all directors. Copies of the form will need to be sent to employees, creditors and shareholders within one week of submitting the form, too.
If there are no objections to the business closing, the striking off will take place two months after submission. You’ll have to pay a £10 dissolution fee to Companies House, and this can’t be from an account connected to the business.
There are some other things to care of, too. You’ll need to settle any outstanding debts, take care of the sale or change of ownership of any assets, and prepare cessation accounts and a final tax return. Don’t forget about dealing with any employees according to the government rules, too.
An MVL (also known as a solvent liquidation) is a tax-efficient way to close a limited company. This is because remaining profits can be distributed to shareholders without them having to pay income tax, the funds released are treated as a capital gain.
Be aware, though, that closing via an MVL can cost upwards of £2,250 as you must appoint a liquidator. So, it’s not a viable route for those with less than £35,000 retained profits.
As with striking off, there are several steps you need to take. These are:
If you’re insolvent
If your limited company is insolvent, you only have one choice when it comes to closing: a Creditors’ Voluntary Liquidation (CVL) and you must take advice on this. Let’s take a look at what’s involved:
A CVL means that the company’s assets will be used to pay the parties it owes money to. First, the director must get at least 75% of all shareholders to agree to a ‘winding-up resolution’.
Once this has happened, the resolution will need to be sent to Companies House within 15 days and posted in The Gazette within 14 days. You’ll need to appoint an authorised liquidator, too.
Following all of this (and assuming there are no petitions from creditors), the business will be struck off from Companies House.
Don’t forget about your responsibilities
Whether you are solvent or not, you’ll have to take care of the following loose ends when closing your limited company:
If your business is VAT registered, you’ll need to inform HMRC of your decision to close. You can do this with a VAT7 form.
Corporation Tax and PAYE
Be sure to inform HMRC of your decision to cease trading. Otherwise, you might still be served reminders to pay Corporation Tax. Likewise, if you have a PAYE scheme in place, you’ll need to inform HMRC of your closure.
Any equipment that was bought through the company will either need to be sold or have ownership transferred. Also, you’ll need to account for any capital gain released to you in your next tax return.
If you’re in a situation where you need to pause your business activities (perhaps to start a full-time role, or to take a break), then our dormancy accounting package might be a more suitable option than dissolving your limited company.
While dormant, you’ll still have to file tax returns and annual accounts. Of course, if you’re not trading, then they should be straightforward to complete, and your accountancy fees will be reduced to reflect this
Deciding to close your limited company is never easy. But, after reading this guide, you’ll now be able to do it with the minimum fuss and maximum efficiency. Then, it’s time to look to the future.
If you’ve got any other questions about your limited company, why not drop us a line? You can get in touch right here.