There comes a time in our lives when we start to wonder whether we should quit the day job to spend our days in a more restful way. There’s probably a once in a lifetime trip you’re ready to take, sunnier climes you’d like to live in, or perhaps it’s time for a professional change of scene.
Clearly, there are plenty of reasons why you might want to close a consultancy company, and whether you’re having a temporary hiatus, or ending your time as a consultant altogether, there are a number of options available to you. It is always advisable to seek professional assistance when closing your limited company, but this overview of your options should give you the background information you need.
Strike off your business
If you’re sure you want to close your consultancy company then striking your company off the Companies Register is one of the options available to you. The process is cheap, costing only £10, so that’s a definite plus. It’s also relatively simple, as long as your business fits certain criteria and you take the necessary steps to close the business down legally.
This process can only be used if the company:
• Hasn’t traded or sold any stock in the last three months;
• Hasn’t changed names in the last three months;
• Isn’t threatened with liquidation;
• Doesn’t have any agreements with creditors such as a company voluntary arrangement (CVA).
If the company doesn’t meet these criteria when considering how to close a consultancy company, you’ll have to use a members’ voluntary liquidation instead. Be aware the rules have changed regarding MVLs and they are scrutinised more closely than they were for tax avoidance.
To strike the business of legally, you must send a copy of your application to strike-off to anyone who could be affected i.e. shareholders, employees, trustees etc. within seven days. Any employees must be paid what they are owed and the redundancy process must take place in the proper way.
You’ll also need to inform HMRC that the company has ceased trading and you wish to close your consultancy company and send the appropriate documentation from Companies House. Once your PAYE and National Insurance contributions are fully paid up and up to date, you can then ask for the company’s payroll scheme to be closed down. Be aware if you do not inform all relevant departments of HMRC they will automatically object to any proposal to strike off.
The next job is to distribute any assets among the shareholders and file final statutory accounts and a company tax return with HMRC. Business records and accounts should be kept for six years after the end of the relevant accountancy period to avoid potential problems further down the line. Under the Bona Vacantia rules, any assets remaining when the company is dissolved will pass to the Crown (including any bank balances), so it’s important you administer this process properly. Follow these steps and this is the cheapest and simplest way to close down a one-man consultancy business.
Usually, something goes wrong whether it is the loss of a contract; sudden illness or something else it is critical to keep your taxes up to date and not to continue taking dividends. By continuing to take dividends when the company cannot pay its tax bills is a very big mistake and could cost you, dear. Any dividends were taken whilst the company is insolvent may mean they will have to be repaid and you will need specialist insolvency advice. If HMRC decides to close your company by way of legal action and threat of winding up you must seek insolvency advice immediately to better protect yourself and family.
Making your Company Dormant
Alternatively, if you’d rather take an extended break from your consultancy business rather than striking it off entirely, you’ll probably be better served by leaving the company open.
You can do this by making your company dormant. You will need to inform HMRC of your intentions by writing to your local corporation tax office and stating the date the company became dormant. You’ll then be sent a ‘Notice to deliver a Corporation Tax return’ for the period up to this date.
To make a one-person consultancy company dormant, you will have to:
• Pay any outstanding bills and cancel any contracts such as insurance, utilities, leases of buildings or equipment, insurance and telephone or internet services;
• Make sure you’ve received all the payments you expect from customers and terminate any agreements for the provision of products of services;
• Pay any outstanding VAT due to HMRC and cancel the company’s VAT registration;
• Pay any final wages to employees (if you have them) and close the company’s payroll scheme;
• Close down any company bank accounts to ensure no interest is paid to the dormant company.
The slightest divergence from this process, such as continuing to pay for utilities or insurance, will prevent the company from being seen as dormant in the eyes of HMRC, and you will have to file normal company accounts as a result.
Do you have to tell Companies House when you close a consultancy company? And what about your dormant company?
Once you have told HMRC about your dormant business, you will usually receive confirmation of your dormant status within three weeks. At this point, HMRC will no longer consider your business to be active, so you should start to receive less correspondence. You also shouldn’t need to contact HMRC until you start trading again.
You will not have to tell Companies House about the dormancy until it’s time to file your annual accounts. Accounts will need to be filed right up to the start of the period of dormancy. For the first full accounting period in which the company is dormant, you will also need to submit dormant company accounts to Companies House within nine months of your company accounting reference date.
On an ongoing basis, you will also need to meet a number of Companies House filing obligations, including:
• Preparing and submitting an annual return, which you can learn more about here;
• Submitting the appropriate forms when a new company director or secretary is appointed or their names change;
• Informing Companies House of any changes to the address where the company is registered and its records are stored.
How do you make a dormant company active again?
The process of making a dormant company active is a relatively simple one. If you want to start trading again, you must tell HMRC immediately and put together statutory accounts and company tax returns after the company’s year end.
Once the company is up and running again, your reporting dates will stay the same as they were for your annual returns and accounts. However, your corporation tax accounting period will restart on the date the business becomes active.
Liquidate the company
A members’ voluntary liquidation is another way to close down a solvent, one-person consultancy business. This process is an excellent tool for taking money out of your business at a much lower rate of tax, helping you make a sizeable profit while walking away from the company. This process could be the best option available to you if:
• The company has plenty of assets, like property, vehicles, stock and/or cash in the bank, but it has no future purpose;
• You would like to retire and no-one else in the family wishes to run the company, so transferring the firm’s assets and cash over to you personally is the best option;
• You want to step down from the business and realise the cash or the assets tied up in the company;
• You want to start a new company and would like to close the current business beforehand.
How does a members’ voluntary liquidation work?
Your first task is to complete and sign the declaration of solvency form 4.70, which must be sent to Companies House within 15 days of the resolution being made. An authorised insolvency practitioner must then be appointed as the liquidator if the distributable assets have a value greater than £25,000. If the assets are worth less than this amount, it is not necessary to formally appoint a liquidator.
If a liquidator is appointed, there will actually be very little left for you to do. While a licensed insolvency practitioner may charge for this service, they will also help you benefit from a substantial tax saving.
Sell the business
Alternatively, you could stand to make a sizeable profit while walking away from your consultancy business by selling the company. As a one-person limited company, you will not be able to sell your company shares on the stock market like a PLC. However, if you do find a buyer to transfer the directorship and shares in the company to, then as you’re the only shareholder, valuing the company should be relatively easy.
How can we help?
If a member’s voluntary liquidation sounds like the most appropriate tool to close your company down, we can help. Please call 08000 746 757, email: [email protected] or use the live support feature on our website for a no-obligation discussion of your circumstances.
Written by: Mike Smith