Forming a company is a simple enough process and one you can complete in just a couple of hours. However, closing or ‘dissolving’ a company can be a different matter entirely without professional help.
Although there’s nothing like a bit of expert assistance to help you tie up all those loose ends, it is possible to close your limited company yourself.
In this post, we will explore the different ways a limited company can be closed.
How do I Close a Company?
If you choose to close (also known as winding up your limited company), you must apply to Companies House to have it voluntarily wound-up and struck off the register. You can only have your company struck off the Companies Registrar if:
- Your company hasn’t traded or sold any stock in the last 3 months
- Hasn’t changed names in the last 3 months
- Isn’t threatened with liquidation
- Has no agreements with creditors, e.g. a company voluntary arrangement
- There are no existing debts
If your company doesn’t satisfy the above conditions, you will have to voluntarily liquidate the business instead.
Fill Out a DSO1 Form
If you satisfy these conditions, you will be provided with a DS01 form to complete. This should be completed and filed with Companies House.
What Does the Law say About Closing a Company
HMRC’s page on the regulations is here.
UK law differs depending on whether your company is solvent or insolvent.
If your company has debts or is insolvent, you cannot liquidate the company yourself. In order to ensure fair play for creditors, insolvency practitioners are the only ones who can do this. They will likely recommend you a creditors voluntary liquidation, as the appropriate method.
For solvent companies with assets who want to close a company in a tax efficient manner, a members voluntary liquidation is the right choice.
Where a company hasn’t traded in at least 3 months, a process known as strike off, or dissolution, may be appropriate. This means you can simply notify Company’s House that you wish to have it removed from their official register. Providing you fulfill the criteria, it is the cheapest way of doing things.
How Much Does it Cost to Close a Limited Company?
Submitting a DS01 form to Companies House comes with a mere £10 filing fee.
Read our full article here on The Costs of Closing a Limited Company.
Liquidation costs vary widely depending on the size and complexity of the case, but £5000-£7000 would be a reasonably approximation.
How do I Inform HMRC of a closing company?
You’ll need to ensure your accounts are completed from the last yearly accounts filed until the final day of trading. Submit these to HMRC, along with a request to close the corporation tax account.
Tell HMRC you wish to stop being an employer here, and submit a final P35 Employer’s Annual Return. You’ll also need to ensure you’re fully paid up regarding you PAYE and National Insurance contributions.
If you’re VAT registered, tell HMRC you’re deregistering here.
Since corporation tax, payroll and VAT are three completely independent departments within HMRC, it is necessary to contact them all separately. All tax returns should be filed.
Companies House have a close relationship with HMRC so once you’ve done this, striking the company from the register will be the final step to alert HMRC that this business no longer exists.
Closing a Solvent Company via Members’ Voluntary Liquidation
If your company is solvent with assets, you can close the business using a members’ voluntary liquidation. This is appropriate if:
• Company Directors Wish to Retire
• You wish to step down from a family business and no one else wants to run it
• Pursue another career path
• Release assets/cash from the company tax efficiently
Closing a solvent company could hold you liable for capital gains tax. MVL’s offer a tax benefit known as Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) which you can read more about here.
If Your Company is Dormant or Never Traded?
If the company is dormant or never trade, closing the company should be straightforward. Once the directors have agreed, submit the application for Strike Off using form DS01. After it’s been advertised in the Gazette, and waited out the mandatory 3 month objection period it will be struck off the register and cease to have legal existence.
Will Closing a Company Affect the Director Personally?
As long as the director has not behaved improperly, the closure will have no impact on any future business activities.
Can I Close a Company and Start a New One?
The answer is that you can start another one providing all the requirements of companies house are adhered to.
What HMRC is keen to prevent, however, is the process known as phoenixing, whereby a liquidated company rises from the ashes with the same or similar name, but within a new limited company structure.
This is prohibited by Section 216 of the Insolvency Act.
You can’t for example, use the same company name again.
How to Close a Company With Debts
If you want to close a company that is unable to pay its bills, you will need to initiate a creditors’ voluntary liquidation. A director of a company can propose a creditors’ voluntary liquidation if:
• The company can’t pay its debts
• Enough shareholders (75 percent by the value of shares) agree
To get the shareholders agreement to cease trading and liquidate the company you must call a shareholders meeting and ask them to vote. If 75 percent (by value of shares) agree, you must then:
• Appoint an authorised insolvency practitioner to liquidate the company
• Send the resolution to Companies House within 15 days
• Advertise the resolution in the Gazette
The company must also hold a creditors’ meeting within 14 days of passing the resolution. Creditors must be given at least 7 days notice of the meeting, which must also be advertised in the Gazette. A Statement of Affairs must be presented to creditors during the meeting which summarises the company’s assets and liabilities. A summary should also be given to the liquidator.
When all assets have been converted into cash and creditors repaid in order of priority, the company will be struck off three months after the liquidator has held a final meeting.
Be careful to check for an overdrawn directors’ loan account as this can be quite serious once a company has become insolvent.
Striking Off a Company with Debt to HMRC or Another Creditor
If you attempt to strike off your company with outstanding debts to HMRC or another creditor, they will likely raise an Objection to Company Strike Off. This is a formal objection which tells you that you are forbidden from closing the company until your debt is settled. If you are unable to settle your tax arrears, there is the possibility that they will compulsorily liquidate your company. If HMRC is the creditor, they will often do so not because the sums of money are meaningful to them, so much as to make an example. So if you’re in this situation, it is wise to seek advice immediately.
How Long Does it Take to Close a Company?
Assuming the company is simply being struck off the register at Companies House, expect a time frame of around 3 months before you receive confirmation.
Liquidation is likely to take much longer, especially if there are assets to dispose of.
Can HMRC Pursue a Dissolved Company?
The short answer is yes.
If a company is struck off the register with debts, any creditor – including HMRC – can object.
This would be a classic reason to receive an Objection to Company Strike Off Letter.
Even if the company is successfully dissolved and HMRC discovers a debt they simply have to apply to have the company restored to the register, after which they can pursue the tax arrears in the normal fashion.
The lesson here is that striking off a company isn’t a way to avoid debts, they must be dealt with legitimately before the process begins.