It’s an all-too-common story. Times were good, you had new clients coming out of your ears, more work than you could handle and your bank account was overflowing. You did the sensible thing and formed a limited company to make the most of your earnings – clever you.
But then; disaster. Maybe your biggest client went belly-up, or you simply realised you can’t stand your colleagues’ awful habits. Your income plummets, and suddenly the extra paperwork and Companies House filings just don’t seem worth it – you pine for the days of sole tradership and finally, after much deliberation, you decide to close down your limited company.
But how do you do that, exactly? Who needs to know and what steps need to be taken?
Get everything up to date
Although you’ll go on conducting your business as a sole trader your limited company, as a legal entity, must have all its loose ends tidied away. This means settling any outstanding bills, and collecting any owed invoices, and making sure you make provisions for any running costs that may be incurred between now and when your company is legally wound-up (e.g. if you’re paying an accountant to finalise your last batch of returns or employing some credit control services to round up those late payers).
The good news is that these can be treated as legitimate business expenses, and so can offset your final tax bill.
“Striking Off” application to Companies House
A company director needs to complete a DS01 form, which is essentially a ‘striking off’ application. This will ask you for your company name, your Company Registration Number (CRN), and the names and signatures of all (or the majority) of the company’s directors. You also need to enclose a cheque for £10 from an account that doesn’t belong to the company you’re striking off.
When this has been received, Companies House will post a notice in an official public record (the Gazette) in London, Edinburgh, or Belfast, to provide official notice to any third parties who may object to the closure (of course, if you haven’t traded, this shouldn’t be much cause for concern).
If no objections are raised, Companies House will confirm the closure of your company in the Gazette when three months have passed.
We’ve written an article about the tax implications of closing a limited company if there are profits to distribute.
If you’re VAT registered, you will need to inform HMRC of your intention to de-register by completing a VAT 7 form. Once this form is received, HMRC will contact you with your de-registration date. You must also complete a final VAT Return that takes into account things such as leftover stock or any equipment your business owns.
You must inform HMRC that your company is no longer trading so they do not issue further reminders for Corporation Tax.
If you operate a PAYE Scheme HMRC will also need to be told that it is no longer in operation, and it will need to be closed down.
If you’re operating a limited company as a freelancer there’s a good probability your equipment (laptop etc.) is owned by your company for tax reasons – if you take possession of company equipment personally when your company is would up you may need to pay Capital Gains tax on those items. Our article on the tax implications of closing down a limited company can give you more details.
If you think you might want to trade through your limited company again soon, you always have the option of putting it “on hold”. Instead of informing HMRC that you intend to close the limited company down, you can make the company “dormant”. You’ll still have to file certain tax returns, but they’ll be “nil returns”, meaning you just report a load of zeroes to HMRC to show them you’re not trading.
You can work as a sole trader outside your limited company in the meantime and return to working through your limited company when it makes more financial sense (bear in mind this will make your Self Assessment rather more complicated, though).
If all of the above sounds like too much of a hassle, there’s another option open to you known as an informal strike-off. Informally striking off your company is a method of closing your business down when you’ve less than £30,000 in retained profit. This means your company will be taken off the Companies House register and won’t legally exist anymore, which spares you having to go through standard liquidation processes.
The upside of this option is that it’s relatively quick and straightforward to do. You’ll need to complete a DS01 form and ensure all company directors sign. Just remember to transfer your company assets before you close it down; when a company is struck off, any bank accounts are frozen and any balances are taken by the crown.
Dissolving a limited company is, as you can see from the above, a bit of a hassle. There are other considerations, too – if you deregister from the Flat Rate VAT scheme, you can’t re-register for a year.
If the good times return and you decide to re-incorporate, this could leave you out of pocket. It’s a good idea to talk through your options with an accountant so you can be sure to make the best decision for your circumstances.