Getting some closure: How to shut down your limited company
Though still the most common trading model for contractors, there may come a time when you need to close down a limited company. Here, we look at how to achieve a clean and tidy separation, writes Beacon LLP.
For a number of reasons, the majority of contractors entering the market will choose to set up a limited company to handle their affairs. For those who desire more control over their working life, a limited company is the obvious choice as it makes you almost completely the master of your own destiny, while those who seek to maximise their earning potential by cutting out agents and middlemen will find that ‘going limited’ opens up a wealth (literally) of possibilities for managing your money to your best advantage.
However, there may come a time when a limited company no longer suits your needs. Perhaps you are leaving contracting altogether, either retiring or returning to permanent employment. Alternatively, you may be staying within contracting but offering a different service under a new company name, or may simply feel that you don’t need the stress of running your own business. Whatever the reason, it’s important for your credit rating and future trading prospects that you handle the shutting down (or 'winding up') of your limited company professionally.
Not dead but sleeping
If you wish to cease trading through your limited company for now but feel that you may wish to revive it at a later date, you should consider making it dormant instead of closing it completely. This can be more cost effective as you avoid the full expense of closing down, as well as the cost of starting again from scratch when you wish to recommence trading, although there will be a small overhead (typically less than £100 annually at the time of writing) involved in maintaining the dormant company.
To make your company dormant, ensure that all clients and any agents doing business on its behalf are aware that you are ceasing trading and any agreements or contracts are to be terminated.
You will need to prepare final accounts and ensure that your corporation tax is paid in full. You must empty and close any interest-generating bank accounts – if a dormant company undertakes even a single transaction, for example an interest payment or bank charge, you will become liable for a full set of trading accounts and corporation tax for the relevant period. You must also close your payroll and notify your accountant that trading has ceased.
More information on the administration of a dormant company can be found on the Companies House web site.
Liquidation: is it what you need?
Having decided that closure is the best course, the first and most important question to ask yourself is ‘can my limited company settle its debts?’. If there is not enough money in the business to pay all its creditors in full, then closing the company down becomes a much more involved process and one that you are almost guaranteed to require professional advice to complete. Dealing with insolvency is outside the scope of this article, but your accountant should be able to provide guidance, while independent online resources such as the Insolvency Service can give additional information and support.
Where a company can meet its financial obligations, the process of closure, though complex, is reasonably straightforward.
Once you have chosen the date on which you wish your company to cease trading, you should not process any more transactions other than those required by the closure process. Ensure that all creditors have been paid in full.
You will need to notify HMRC of your intention to cease trading as early as you can, though it is worth holding off submitting your final accounts for a few weeks or months to ensure that any late-occurring expenses can be included. If you are VAT registered, you will need to cancel your registration. You will also need to run a final payroll to obtain P45s for yourself and any staff you employ, as well as submitting a P35 Employer Annual Return and paying any outstanding PAYE and/or NICs. More details on all these requirements can be found on the HMRC website.
Once you are sure that there will be no more funds coming into or leaving the business, you should prepare and submit your final accounts. HMRC will calculate the Corporation Tax due, which must be paid within nine months (though in practice it is advisable to settle this as quickly as possible, as the company cannot be closed until all tax due is paid). Once this is done, any money remaining may be taken as a dividend.
Do NOT leave any funds in the company’s bank account(s); once the company has been dissolved (see below), any such can revert to the Crown.
Three months after your company ceases trading, assuming that all outstanding taxes and other commitments have been paid, you may apply to Companies House to have your company dissolved using form DS01 – note that there is a charge of £10 for this. Following a consultation period (during which Companies House will publicise the proposal to strike off of your company to ensure that any interested parties have an opportunity to challenge the process) and assuming a) that no difficulties or objections arise and b) that you don’t change your mind, your company will be struck off the Companies House register and will no longer exist.
More advice on the process of dissolving a limited company and the conditions that must be met can be found on the Companies House website. It is advisable to check over this guidance carefully, as it provides a valuable double-check to help you ensure that all necessary notifications have been made and commitments met before taking the final step.
Closing your contracting limited company can be a big step, and a daunting one, particularly if you’re taking this course because contracting has not worked out for you. Hopefully these notes have helped to clarify how you should approach a company closure; as always in matters of contracting and finance, though, you should familiarise yourself with the latest guidance from bodies such as HMRC and Companies House, and should consider taking professional advice to ensure that all eventualities are covered and that the closure can be completed with minimum fuss and maximum efficiency.
Beacon LLP provides contractors with a specialist insolvency service. With Beacon LLP contractors can close down their limited company in as little as 24 hours with no upfront or hidden costs, for more information please click here.