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How to Close Down A Limited Company

closing sign in shop window

There are many reasons for wanting to close down your limited company. Some of the most common reasons we hear are for retirement purposes, becoming a sole trader or due to financial difficulties. One thing is for sure, when you decide to close down your limited company, be certain it is the right choice and then read on to find out more about the process.

How Does A Limited Company Close Down?

In response to this question, how a company is closed down depends very much on its financial situation and whether it is trading or not. Think if you can cover the debts within and if assets are more than liabilities' worth.  It can be closed by the directors whether it is solvent or insolvent.  If it is solvent then it can be closed using a members voluntary liquidation if it has no debts, or a dissolution if there are minimal debts or assets and it hasn't traded for 3 months.  If the company is insolvent and unable to pay its debts, then under director control it can seek a creditors voluntary liquidation.  If the company is insolvent and there are no funds or an unwillingness to bring matters to an end then it will be compulsorily wound up by the court following a winding up petition.

When closing down your limited company, there are various options you can take as mentioned earlier depending on your company's financial state. Firstly, you need to ensure you have some funds as trading debts will need paying. These include:

  • Final corporation tax and VAT payments - Note HMRC must be informed that you intend to close down your company and you must de-register from paying such taxes
  • Final accounting fees
  • Bank loans and overdrafts
  • Any money owed to shareholders or directors
  • Any remaining accounts owed to trade suppliers
  • Any outstanding payments of PAYE and National Insurance on the payroll
  • Any ongoing commitments, including hire purchase or lease agreements
  • Ongoing/running costs until your company is wound up

It is important, as per above, to close all loose ends.

If your limited company owes money to creditors, the following options to close the company are available to you (Insolvent)

Creditors Voluntary Liquidation (CVL)

Creditors have the authority to appoint liquidators who will assist the company in selling its assets and using the received cash to fund the debts. A CVL is the best option if there is a large amount of debt, as the director's duty will be to maximise the creditors best interests.

Read more on CVLs here. Additionally, if you would like to liquidate your company, call us on 0800 9700539. We can talk you through the process, organise the legal paperwork and begin proceedings. 

Compulsory Liquidation

A creditor can apply to the court for your company to be wound up via the issue of a winding-up petition. This will bring an end to the company as a winding-up order will be made. The Official Receiver is then appointed to liquidate any assets of the company and undertake an investigation into the director's conduct. Read more about compulsory liquidaton 

Options to Close A Company With No Debts (Solvent)

Members Voluntary Liquidation (MVL)

This is a formal process used to close a solvent company. Licensed insolvency practitioners are called in to aid the company in turning assets into cash. The money received from this is then equally distributed to the company shareholders. Directors may be able to claim Entrepreneur's Relief (ER) if there is £25k or more taxed on shareholders using capital gains tax rather than dividends. To claim ER, the directors must declare that the company can pay for everything, including the cost of liquidation, in full. To help with the formal process, call our experienced licensed insolvency practitioners on 0800 9700 539.  Read more about the MVL process

Closing down after IR35

If you are considering closing your company after IR35, due to the reforms, then bear in mind all the valid points above.  It all depends on really what your legal status is and how much profit you have retained.  Many private sector companies are now not taking on contractors via companies.  This may mean that your company is no longer viable/needed or is insolvent as any debts cannot be paid off by the company itself.  If the company is insolvent then a creditors voluntary liquidation is the correct way to the close the company.

Dissolution, also known as an informal striking off

Below are the simple steps you should take:

  • Take no more transactions and continue to cease trading. The only transactions that should be applicable at this date should be those required for the winding-up procedure.
  • Payments should be made to all creditors. Until all debts are paid, the business bank account should not be emptied or closed. Any loans to or from any stakeholders of the company need to be repaid. Any hire purchase or lease agreements need to end early, so the finance companies should be contacted.
  • A final payroll is run for all the staff. A P45 will be issued. A final return of payroll information will need documenting to HMRC.
  • The company must apply to HMRC for its VAT registration to be cancelled. The form, 'VAT 7', is used. A final VAT return will need completing. 
  • Directors of the company now have the opportunity to resign. However, at minimum, one director should remain to follow through with the closure. 
  • A final set of accounts will need to be submitted to HMRC. Usually, these are prepared a few weeks or months from when the firm ceased trading, as in the following months there may still be some final expenses needing sorting. HMRC will also need to be informed that the company has ceased trading and has no more taxable income.
  • The last payment is underway. This is the payment of corporation tax, paid from the company's bank account. From closing the business, the company has nine months to pay this – the company cannot be shut down until the payment is finalised.
  • All assets remaining, should be proportionally paid out to the shareholders, based on their shares.
  • Following an inactive three months of business and payment of all debts, directors can fill in the striking off application form DS01 and send this to companies' house (enclosed with a £10 cheque).
  • Keep checking the companies house list to see your company's status. Once the status says 'dissolved', the application has been accepted, and companies house have closed your business.
  • An alternative should be outlined here. It costs less than £100 for the business to stay dormant. This means the company is able to be used again with no delay or set up cost. The company name will remain as will the financial credit status. This should only be done when the company may be used again in 3 years if not, it will work out more cost-effective to just dissolve.

Read more about dissolution here

We have a dissolution programme that we sell for just £40 + VAT that has all the necessary documents and template letters that you need to close your company down along with instructions and timelines. Email robertm@ksagroup.co.uk for your programme today or visit our website www.dissolvemycompany.co.uk.

One more option

Making your limited company dormant

In a nutshell, this means putting your company on hold. It can be done if you think you will trade through your company again in the future. 

With this procedure you still need to file some tax returns but they will be 'nil returns' i.e. lots of zeroes! 

Whilst the company is on hold, you are able to work as a sole trader outside of it until you feel ready to return to your limited company.

So have a think, assess your situation and seek the best option. Get in touch with us today for help and guidance.

A Worried Director

The Ultimate Guide For Worried Directors

Worried about poor cashflow? Feel you have got into a bit of a mess? Covid-19?, How to pay wages on pay day? For reassuring advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539

Please note that the guide includes updates due to Covid-19 For instance there have been some changes to insolvency legislation that limits creditors actions.  A new 20 day moratorium for distressed businesses has also been introduced. 

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