Closing Your Limited Company
If you decide you no longer need your limited company, you can close it down; it will be removed from the Companies House register, meaning it no longer exists as a separate entity.
Before you begin the process of closing your limited company, you should ask yourself whether you will potentially need it again. If you are only looking to make your company inactive for a short time, you may be better off leaving your limited company dormant.
If you decide that you want to close your limited company, and it is solvent (there are enough assets to discharge its liabilities), you can go about it in multiple ways.
Voluntary Dissolution
Voluntary dissolution, also known as ‘striking off’, is an option if:
- The capital gain released is less than £25,000,
- You have not traded or sold stock for three months,
- You have not changed the company name in the last three months, and
- You have not been threatened with insolvency by creditors.
i) Voluntary Dissolution Process
To dissolve a company, you must submit a form DS01. This can be completed online or printed and mailed to Companies House. If you have multiple directors, at least half must sign the application.
Once filed, you must send a copy to all shareholders, creditors, and employees within a week of submission. Companies House will also publish an official notice in The Gazette. If no one objects to the dissolution, your company will be dissolved within three months of submitting the form.
The cost of striking off is £10; the limited company can’t pay this.
You will also need to:
- Made any staff redundant and paid final wages,
- Notify any relevant organisations and businesses you work with: insurers, accountants, your business bank provider, any outsourced payroll service, etc,
- Ensure you have de-registered for VAT and closed your PAYE scheme,
- Prepare and file your final company cessation accounts and tax return and pay any Corporation Tax and
- Settle any outstanding debts and deal with the sale or transfer of ownership of business assets (including cash).
Any assets that remain within the company at the point they are struck off become the property of the crown, so it is crucial that you transfer all assets (including cash) to the ownership of the shareholders before filing form DS01.
ii) Voluntary Dissolution Tax
If you take assets out of the company before they’re struck off, and the total value exceeds the tax-free allowance of £3,000, you must pay capital gains tax. The amount of capital gains tax you pay is dependent on your income:
- If you’re a basic rate taxpayer, the rate is 10% on any gains that fall within the basic rate band and 20% on anything over,
- If you’re a higher rate or additional rate taxpayer, you’ll pay 20%.
The capital gains tax owed is calculated when you file your self-assessment tax return. You may be eligible to receive Business Asset Disposal Relief (previously known as Entrepreneurs Relief).
If the amount exceeds £25,000, it will be treated as income, and you’ll have to pay income tax. In this scenario, a Member’s Voluntary Liquidation is preferable.
Member’s Voluntary Liquidation
You may choose members’ voluntary liquidation if your company is ‘solvent’ (can pay its debts) and you do not want to run the business anymore.
Although it is often seen as more tedious, members’ voluntary liquidation is often the preferred method of closing a company as it is not subject to the same £25,000 ceiling as voluntary dissolution.
i) Member’s Voluntary Liquidation Process
To pass a resolution for members’ voluntary liquidation, you must:
- Make a ‘Declaration of solvency’ (English and Welsh companies);
- Ask the Accountant in Bankruptcy for form 4.25 (Scottish companies)
Declaring solvency involves writing a statement that the directors have assessed the company and believe it can pay its debts with interest at the official rate. You also need to include the following:
- The name and address of the company;
- The names and addresses of the company’s directors,
- How long it will take the company to pay its debts (this must be no longer than 12 months from when the company is liquidated), and
- The statement of the company’s assets and liabilities.
After you have made the declaration or filled in form 4.25, it must be signed by the majority of directors in front of a solicitor or notary. Once signed, you must call a general meeting of the shareholders (no more than five weeks after signing) and pass a resolution for voluntary winding up.
At the meeting, you must appoint an authorised insolvency practitioner as a liquidator who will oversee the company. After the meeting, you must advertise the resolution in The Gazette within 14 days and send the signed declaration/form to Companies House.
The liquidator is an authorised insolvency practitioner who runs the liquidation process. As soon as they are appointed, they’ll take control of the business and your responsibilities as a director will change.
When a liquidator is appointed, directors no longer have control of the company or anything it owns and cannot act for or on behalf of the company. As a director, you must give the liquidator any information about the company they ask for and hand over its assets, records and paperwork.
After the liquidator has settled any outstanding claims with creditors, the company’s remaining assets (including cash) are distributed to shareholders.
ii) Member’s Voluntary Liquidation Tax
If the value of the assets you receive exceeds the tax-free allowance of £6,000, you will have to pay capital gains tax. The amount of capital gains tax you pay is dependent on your income:
- If you’re a basic rate taxpayer, the rate is 10% on any gains that fall within the basic rate band and 20% on anything over,
- If you’re a higher rate or additional rate taxpayer, you’ll pay 20%.
The capital gains tax owed is calculated when you file your self-assessment tax return. You may be eligible to receive Business Asset Disposal Relief.
Unlike voluntary dissolution, there is no ceiling to the value of the assets you can receive via a Member’s Voluntary Liquidation.
Which Is Right For Me?
Whether a voluntary dissolution or members voluntary liquidation is right for you is predominantly determined by the value of the remaining assets (including cash) your business has:
- If it is less than £25,000, a voluntary dissolution is preferable;
- If it exceeds £25,000, you will likely decide to go with a member’s voluntary liquidation.
The liquidation process is usually relatively straightforward if you are a sole director/shareholder (as most Outside IR35 contractors are). Although hiring a liquidator sounds time-consuming, given your business’s nature, their task will be relatively simple and shouldn’t take too long.