10 Steps to Closing a Company
There may come a point when you no longer need to trade through a limited company, however as the business is a legal entity the process of closing a company is far from simple. This guide explains the steps involved.
1. Stop trading. The company should undertake no further business and only allow transactions necessary to wind the company up.
2. Settle the debts. Everyone the company owes money to needs to be paid, otherwise they can object to the company being closed. However do not empty the company bank account at this stage.
3. VAT. The company will need to apply to HMRC to deregister from VAT, a final return is required and there may be a VAT payment due.
4. PAYE. The end of year returns should be submitted and employees should be issued with P45s. Any outstanding tax and National Insurance deductions must be paid. A request is then made to HMRC to close the company’s payroll scheme.
5. Corporation Tax. A final set of accounts will need to be prepared and submitted to HMRC, but this is usually completed a few months after the company has ceased trading. All tax owing must be paid before the company can be closed. HMRC will also need to be informed that the company has stopped trading and has no further taxable income.
6. Self-Employment/PAYE. If you are taking a role and will be paid by an employer via PAYE then or you no longer plan to be self-employed then HMRC will need to be informed. You will still be required to complete a self-assessment return for the tax year in which your directorship or self-employment ended. For example company closed in July 2023, SA100 required for tax year 2023/24 (due by 31st January 2025).
7. Distributing assets. Any assets left in the company after all obligations have been met should be paid out to the shareholders. Note that cash and assets with a total value of no more than £25,000 can be treated as capital income (so Capital Gains Tax calculations apply – check the Annual Exempt amount for the tax year). Be aware that if the amount is worth more than £25,000, it will be treated as income and you will have to pay income tax on it.
8. Empty the Bank Account. Any money left in the bank account after the company has closed goes to the Crown, so it is important to ensure the bank account is emptied and closed before the final steps are taken.
9. Companies House. You must submit a Striking Off Notice to Companies House (this incurs a nominal fee). If nobody objects, the company will be struck off the register within 3 months and will no longer legally exist.
10. Records. You must retain records relating to your company for at least 7 years.This includes bank statements, invoices, receipts etc.
It is rarely possible to have a company closed within three months, as there are a series of legal formalities that must be dealt with, however you can continue to work in alternative employment whilst the above process is followed. If the business is troubled with debts or is unable to pay its final obligations then an Insolvency Practitioner will need to be appointed before the company can be closed.
As an alternative the company can opt to remain ‘dormant’ on the register for a small annual cost. This means it can be used again, preventing repeat start up costs and protecting the company name. This option is only cost effective if you plan to use the company again within three years.
Please contact us for more information or to have a confidential discussion about your options.
