There can be a number of motives behind wanting to close down your limited company. This includes going back to your full-time employment, retirement or even becoming a sole trader. When it comes to closing down a limited company, you have a number of options. But which one suits you the best?
In this article, we will discuss these options. But before we begin, we have a tip for you! If you are earning a good amount of money and are closing down your limited company due to tax responsibilities that are a constant headache, you might want to avail our services here at the Limelight Accountancy. We take the stress out of your accounting needs and help you reduce both time and cost. That said, if your mind has been made, let us check out everything you need to know about closing down a limited company!
Start By Tying Up All the Loose Ends
Irrespective of whether you wish to change direction, are retiring or simply want to become a sole trader, it is essential to tie up all the loose ends legally. This means making sure all the outstanding bills are settled, the money that the clients owe you is paid, and you have paid for all running costs till the time the company is undergoing the legal processes for the wound-up. The good news in this regard is that all these business expenses can be treated as allowable and so, you can reduce your final bill of corporation tax.
Value Added Tax
If you have been registered for VAT, you will have to inform HMRC that you plan to de-register your limited company. For this, you must complete a VAT 7 form. On the completion of this form, HMRC will get in touch with you with a date of deregistration. Also, you are accountable for VAT until the de-registration date is confirmed by HMRC. Furthermore, you must complete your last VAT return that includes any equipment owned by the business, leftover stock, etc.
It is crucial for you to inform HMRC about your company no longer trading. This is because you do not want them to issue any more reminders to pay the corporation tax. If HMRC has ever issued you a notice for the delivery of a company tax return, you must call HMRC and inform it that it is dormant or you can also inform the authorities by post. In addition to that, if your company has filed one of these company tax returns previously or has gotten a notice for the delivery of a company tax return, you can file the return online. In other words, this will inform HMRC that you have a dormant company.
If your company operates a PAYE scheme, you will also need to inform HMRC that it is not operating any longer and it needs to be shut down. You can also avail the services of Limelight Accountancy in this regard as we will close this scheme on behalf of your company. However, if you would rather do it yourself, you can check out the instructions that have been shared by HMRC at https://www.gov.uk/stop-employing-staff.
If your limited company is being operated as a freelancer, it is likely that the equipment is also owned by the company. When your company shuts down, and you take possession of all its equipment personally, you might also be required to pay tax on those items, namely the Capital Gains Tax.
Is Your Limited Company Solvent Or Insolvent?
In order to determine if your limited company is solvent or insolvent, you need to ask yourself two questions. Does your company possess more assets than it does liabilities? Also, can your company pay its debts promptly? In case the answer is yes to both these questions, your company is solvent. In this scenario, you will be required to distribute all the assets between the shareholders. If the answer is no to both these questions, your company is insolvent as it does not possess the required resources to pay off all its liabilities. Here is good read on What Is the Difference Between Liquidation and Insolvency?
How Can You Close a Solvent Company?
You have two main options when it comes to closing a solvent company.
- Informal Strike-Off/Closure
If you wish to strike-off or remove your company from the Companies House, the Director of your company must complete the DS01 or the striking-off form. You will need to fill in the name of your company, the registration number of your company as well as the names and signatures of the directors of the company, among other things. In addition to that, you will also be required to enclose a £10 cheque from any account that is not of the company.
Once the Companies House receives this form and check, it will publish an official notice in The Gazette to officially notify all third parties who might have an objection to this closure. This should not be too concerning if you have never actually traded as a part of your company. In case of no objections, the Companies House will accept the closure and confirm it in the Gazette after the passage of three months.
It is also noteworthy that all profits from the closure of the company must be distributed fairly amidst the shareholders. This calls for an expert accountant as the profits will need to be distributed in the most tax-efficient manner. Also, remember that you must transfer all the assets of your company prior to closing it down. This is because when a company is closed, all its bank accounts get frozen and the Crown takes any balance that might be in the accounts.
- Members Voluntary Liquidation (MVL)
An MVL or a Members Voluntary Liquidation is another route you can take in case you are closing down a solvent company. This is a tax-efficient way of releasing cash from your company to ensure that all the profits that remain can be distributed fairly amidst the shareholders as capital rather than dividends. MVL comes with the benefit of allowing you to extract all the company assets that are subject to the Capital Gains Tax instead of Income Tax. Hence, you could end up getting more money by the end of the process. That said, if you choose to close your limited company using an MVL, it can cost you around £2,250. Hence, you must only consider this option in case you have over £35,000 from your company in retained profits.
How Can You Close an Insolvent Company?
If your shareholders or directors are all in agreement about your company being insolvent, you will need a CVL or a Creditors’ Voluntary Liquidation in order to close it. In such a scenario, the assets of the company will be allocated to all the parties that it owes money to. Prior to proceeding, 75% of the company’s shareholders must agree to a CVL. On confirmation, you must speak with a licensed insolvency practitioner. He/she will advise you on how to proceed further. Moreover, the completion of the CVL process takes different amounts of time according to the company’s size, its debts and the complexity of its assets.
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