It's possible that after opening your limited company you may want to close it down maybe because you're having trouble with tax issues, planning to retire or to go back to being a sole trader or even go back to having a full time job. Whatever your reason may be a more burning question is what do you do to get all things in order when closing a limited company?
How do you handle issues of loans, assets, and liabilities? Before dissolving your company you will need to evaluate the position your company is currently in, for example, if your company is solvent after accounting for all contingent liabilities you can dissolve the company by applying for a company strike-off or use the Members' Voluntary Liquidation (MVL) process. To use MVL your company must have net assets of above £25,000.
You can also close the company using liquidation if the company is insolvent and has more liabilities, is being pressured by creditors or has zero chances of being rescued.
Voluntary liquidation is started by a company's directors and the shareholders are required to appoint a liquidator who is vetted by the company's creditors. The creditors can choose to keep the appointed liquidator or put forward a different candidate.
Compulsory liquidation is done when a company has been presented and is serving a winding-up petition. When the Winding-up order from the court has been given the Insolvency Service or Official Receiver will perform the duties of a liquidator.
HMRC has different regulations that should be to close down a limited company though these regulations will depend on whether the company is solvent or insolvent.
If your company is insolvent or has liabilities more than what's in its assets or can't pay its bills, you must talk to an insolvency practitioner who will probably advocate for a Creditors Voluntary Liquidation.
A solvent company with enough funds to handle its liabilities can choose to close a limited company in a tax proficient way by using Members' Voluntary Liquidation.
In cases where a company has not traded for the last 3 months or sold any stock within the same time period a more appropriate and cheapest method will be a strike-off or dissolution of the company. To do this, you will need to inform the Company's House of your decision to have your limited company removed from their official register.
Companies House give a DS01 form that you must fill at a cost of £10 only if you're using the dissolution method and your company does not have any debts but if your insolvency process is a Members' Voluntary Liquidation the fee starts from £1,500 to £3,000 depending on how many valuable assets are involved. The liquidator fee for creditors' voluntary liquidation can cost between £3,000 and £6,000 depending on how complex the case is. In circumstances where the company's assets cannot cover the fee, company directors may be responsible to cover it.
Get all your business accounts in order from the previous year accounts to the final day of trading. Send these documents to HMRC together with a request to close the corporation tax account.
Then notify HMRC that you wish to end your employment status with the limited company then send a P35 Employers Annual Return form. Also, check if your PAYE and National insurance contributions have been paid up to you.
You should also deregister for VAT by contacting HMRC and fill all tax returns.
While starting a limited company may be a bit easy, striking it off is a long process when you consider what is else you need to do.
To deregister your business from VAT inclusion you must complete and submit a VAT form 7 to HMRC when you stop trading. HMRC will confirm receiving your form and contact you with a deregistration date but before getting confirmation you must not stop accounting for VAT.
You are also required to submit a final VAT return accounting for leftover stock or business equipment.
To stop receiving reminders for your company to pay Corporation Tax, you should inform HMRC that you are no longer trading and file online a company tax return to show that your company is dormant. If your company has never been asked to submit a company tax return by HMRC you will still need to tell them that your company is dormant by contacting them via phone or post.
A PAYE scheme must be closed when it becomes nonoperational. To do this you will need to contact HMRC and send a final payroll return. HMRC has detailed instructions on how you can do this.
If you have equipment that was purchased by funds from your company then such equipment is part of your company's assets and must be sold or have a transfer of ownership from the company to you. The capital gain must be accounted for and shown when you do your self-assessment tax return.
There a few options to pick from if you're closing a solvent limited business.
Voluntary liquidation is done by applying to Companies House and is a method of winding up a business if it's unable to pay its bills or has more liabilities surpassing its assets. A company director should be appointed to start the process of CVL. The director is responsible for calling a meeting with all shareholders and all must be present to get a 'winding-up resolution. If 75% of the shareholders agree with the resolution, Companies House must be notified within 15 days and the resolution must appear in the Gazette within 2 weeks. You must also appoint an authorised liquidator.
The MVL process is seen by directors as a tax-efficient way of closing down a limited company. Shareholders can gain capital from the remaining profits from your business instead of dividends. With MVL all company assets subject to Capital Gains Tax and not Income Tax can be extracted leaving company owners with more money.
To complete the process shareholders should pass a resolution for voluntary winding up which the Companies House should be informed about after 15 days. The Declaration of Solvency must be signed by a majority of the company's directors and the resolution should appear in the Gazette within 14 days. Another requirement is appointing an Insolvency Practitioner as a liquidator in charge of the winding-up process.
An MVL closure fee starts from £2,250 and can be seen as unprofitable if your retained profits are below £35,000 but remains profitable to directors and shareholders. If you're unsure whether you can gain any profits from using this method, an accountant can give you the right advice.
A company director must complete and submit a striking off form (DS01) to Companies House to start the process of striking off the company. A £10 cheque from another account should also be enclosed and sent along with the DS01 which will ask you to give your company name, registration number, names, and signatures of the directors of the company. Shareholders, employees, and creditors must receive a copy of the submission within a week.
When your submission is received, Companies House will publish a notice for any third parties that may object to the closure you are undertaking. The notice will appear in the Gazette as the official public record and if no objections come forward, Companies House will confirm your company's closure. The confirmation will appear in the Gazette after three months.
To avoid losing any assets or profits, don't forget to transfer them from your company to you because once the company is struck off existing bank accounts are frozen and anything left is possessed by the Crown.
To gain value out of your limited company during closure you can use Members Voluntary Liquidation. By using MVL you avoid being charged capital gains tax and income tax. To get the most out of your business a licensed Insolvency Practitioner must act as a liquidator.
To start the process, 75% of shareholders must sign a Declaration of Solvency which is a binding document showing that the company shall repay its debts with interest after liquidation within a given time. MVL is seen as more costly and time involving as it can continue between 6 to 12 months through a company can be dissolved 2 months after filling if there no objections from third parties.
Closing your business through Members' Voluntary liquidation can be tax-efficient and beneficial if the business is still capable of paying its debts and has excess funds above £25,000.
It can be chosen by directors that want to retire, chase off new dreams, release assets, or if the business is no longer tax efficient.
A limited company closure depends on where your company is in terms of finances and this is what is referred to as being solvent and insolvent.
A solvent company is a company capable of paying its liabilities and is not facing any legal threats or action from creditors while an insolvent company will find it hard to pay off its debts, may have insufficient funds to pay bills, or maybe facing legal action or pressure from creditors.
If all shareholders and directors have agreed that the company does not have enough resources to run or pay off its debts you must start the process of shutting it down using Creditors Voluntary Liquidation (CVL). Any assets owned by the company will be used as payment to creditors but 75% of the shareholders should be in agreement with the decision of shutting down. A licensed Insolvency Practitioner will have to be appointed to guide the procedure. The length that CVL might take will depend on the complexity of liabilities and available assets plus the size of the company.
The company will be struck off from the Companies House register when the process is completed. If before the shareholders agreed to undertake a voluntary liquidation, a creditor filed a winding-up petition at the court and it is successful a Compulsory Liquidation of the business can be ordered by the court.
If you get your business struck off from the official register then you can't trade under it again as it longer exists but if you wish to continue trading under your company name in future you can put it on hold.
A company can be made dormant and you will not be obligated to inform HMRC of an intention to close though you will still be required to file some types of tax returns that can indicate zeros to show that you're not trading. Your Corporation Tax must be paid in full before making the company dormant and you will be required to send HMRC your annual confirmation statement, dormancy statements, and annual accounts.
You may wish to make the business dormant because it's not bringing in profits at that time and operate as a sole trader until you're ready to bring the company back to life.
Yes. A dormant company might need a professional accountant to handle its annual accounting statements. An accountant can help retain the status of dormancy which can be lost if significant accounting transactions are made during a financial period that the limited company is dormant.
If your previous company underwent an insolvency process you will need to be aware of the provisions made for directors in the Insolvency Act of 1986 but if it did not there is no legal condition preventing you from starting a new business. All Companies House will have to be followed to achieve this.
Bear in mind though that you cannot re-use a name of a liquidated company as it is prohibited by the Insolvency Act on Section 216. Company directors must get advice on how to avoid liabilities involved with prohibited names and association to liquidated companies and new entities.
It takes about 3 months for you to get a confirmation letter that your company has been struck off from the Companies House register when you start the process.
A liquidations time frame depends on how company assets are there and the size of the business.
Yes. If a company has been struck off but still owes HMRC and other creditors it can be pursued and it may receive an objection to its strike off before its full dissolution.
In cases where a debt has been discovered and the company is already dissolved HMRC might apply to get the company back into the register so they can pursue the tax arrears owed. So debts can't be avoided by simply getting a business off the official register.
Company directors can decide to dissolve a company if;
Companies that were opened but were never involved in any trade can simply apply for striking off because they do not have current liabilities. In cases where the liabilities exist but the business has never traded an application for striking off or liquidation can be used as a way of closing it.
Simply no. You need an Insolvency Practitioner to help you liquidate your business as the process is difficult and requires someone professional who can assess and investigate the conduct of directors to identify and wrong conduct. It's a legal requirement to have a licensed IP handle your liquidation.
If the process of closure is by applying for a striking-off and Companies House has received from DS01 it will update its records and advertise a notice of the proposal. When no objections are made the company will be dissolved within two months of the application.
If though the closure procedure is insolvent or solvent liquidation, the Companies House will wait until they get a filing of the final account by an official liquidator before the process starts.
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