If you’re thinking about closing your limited company and ceasing trading, there are a few things you need to do first. For example, you’ll need to notify HMRC that you’re ceasing trading, as well as settling any outstanding debts.
In this step-by-step guide, we’ll talk you through how to close a limited company, from the process you need to follow to who you need to tell.
Solvent Vs Insolvent – What’s The Difference?
The process of closing your limited company will depend on whether your company is deemed to be solvent or insolvent.
A solvent company is one that’s able to pay its debts in full, within a reasonable timeframe. An insolvent company, on the other hand, is one that’s unable to pay its debts when they’re due.
If your company is solvent, you’ll be able to close it voluntarily by following the process set out below. If your company is insolvent, you’ll need to follow a different process, which we’ll touch on later in this guide.
Closing A Solvent Limited Company – Step By Step
There are a few key steps you need to take when closing your limited company. Here’s a summary of what you need to do:
Seek shareholder agreement
Notify HMRC that you’re ceasing trading
Settle any outstanding tax bills
Pay any other debts owed by the company
Tell your company’s creditors that you’re ceasing trading
Let your company’s employees know
Cancel any direct debits and standing orders
Close your company bank account
Tell Companies House that you’re striking off your company
Notify other organisations that you’re no longer trading
Let’s take a look at each of those steps in more detail.
1. Seek Shareholder Agreement
The first step is to check your company’s articles of association. These should set out the process you need to follow to close the company. In most cases, you’ll need to get shareholder agreement before you can start the process of closing your business.
If you’re the only shareholder, you can close the company without getting anyone else’s agreement.
2. Notify HMRC That You’re Ceasing Trading
The next step is to let HMRC know that your company is ceasing trading. You can do this by logging into your personal tax account and following the on-screen instructions.
You’ll need to give HMRC your company’s Unique Taxpayer Reference (UTR), as well as your National Insurance number.
3. Settle Any Outstanding Tax Bills
If your company owes any tax, you’ll need to make sure that this is paid off before you can close the business. This includes any Corporation Tax that’s due, as well as any VAT.
If you’re not sure how much tax your company owes, you can check this by logging into your personal tax account.
4. Pay Any Other Debts Owed By The Company
The next step is to make sure that all of the company’s debts are paid off. This includes any money that’s owed to suppliers, as well as any outstanding loans.
If you’re not sure of all the debts that your company owes, you can check your business bank statements and/or accounting records.
5. Tell Your Company’s Creditors That You’re Ceasing Trading
Once you’ve paid off all of the company’s debts, you need to let its creditors know that you’re ceasing trading. You can do this by sending a letter to each creditor, setting out the date that you’ll be ceasing trading.
6. Let Your Employees Know
If your company has any employees, you need to let them know that you’re ceasing trading. You should do this as soon as possible, so that they can start looking for alternative employment.
You’ll also need to make sure that any outstanding wages are paid, as well as any holiday pay that’s due.
7. Cancel Any Direct Debits And Standing Orders
The next step is to cancel any direct debits and standing orders that your company has. This includes things like utilities, insurance, and subscriptions.
8. Close Your Company Bank Account
Once you’ve cancelled all of the company’s direct debits and standing orders, you can close its bank account. You’ll need to contact your bank and let them know that you want to close the account.
9. Tell Companies House That You’re Striking Off Your Company
The next step is to notify Companies House that you’re striking off your company. You can do this by completing and filing a DS01 form.
You’ll need to include a copy of your company’s last set of accounts, as well as a statement of assets and liabilities. You’ll also need to pay an application fee of £8 for an online application or £10 for a paper applications.
10. Notify Other Organisations That You’re No Longer Trading
The final step is to notify any other organisations that you’re no longer trading. This could include your local authority, the DVLA and any professional or licensing bodies.
You should also cancel any business insurance that you have, as well as any professional memberships.
What Happens Next?
Once you’ve followed the steps above and your company is officially closed, there are a few final things you need to do. For example, you’ll need to keep records of your company’s finances for at least 6 years after it’s been struck off.
You might also want to think about transferring any assets (e.g. property, plant and machinery) to another company or individual. And finally, you should let HMRC know that your company has been struck off, so that they can close your company’s tax records.
How To Close An Insolvent Company
If your company is insolvent (i.e. it can’t pay its debts), then you’ll need to follow a different process to close it down. This is because there are specific rules that need to be followed when closing an insolvent company.
The first step is to appoint a licensed insolvency practitioner (IP). They’ll be able to advise you on the best way to close your company, as well as dealing with things like creditors and employees.
Once you’ve appointed an IP, they’ll need to assess your company’s financial situation. They’ll then put together a proposal for how to close your company, which will need to be approved by a majority of your creditors.
If the proposal is approved, the IP will then take control of your company and start the process of closing it down. This could involve selling off any assets, as well as dealing with creditors and employees.
Once the IP has finished closing your company, they’ll need to file a report with Companies House. This will officially close your company and strike it off the register.
Things To Consider Before Closing Your Company
There are a few things you need to bear in mind before closing your company. For example, you need to make sure that all of the company’s debts are paid off. Otherwise, your company could be deemed to be insolvent, and you’ll need to follow the insolvency process.
It’s also worth bearing in mind that closing your company could have an impact on your personal finances. For example, if you’re a director of the company, you could be held liable for any debts that the company can’t pay.
You also need to think about any employees that your company has. You’ll need to make sure that any outstanding wages are paid, as well as any holiday pay that’s due.
Finally, you need to consider the tax implications of closing your company. For example, you might need to pay Capital Gains Tax if you sell any assets that your company owns.
You should seek professional advice before closing your company, to make sure that you’re doing it correctly and to minimise the risks.
Can I Leave My Company Dormant Instead Of Closing It?
If you’re not sure whether you want to close your company, leaving your company to go dormant is an option that you should consider. A dormant company is a company that’s not carrying out any business activity and isn’t generating any income.
There are a few benefits of leaving your company dormant, instead of closing it. For example, you won’t need to file any annual accounts or annual returns with Companies House. And you’ll also be able to keep your company bank account open.
However, there are also a few drawbacks that you should be aware of. For example, your company will still need to pay any annual fees to Companies House (e.g. the £12 annual return fee). And if your company is dormant for too long, it could eventually be struck off by Companies House.
If you’re not sure whether you want to close your company or leave it dormant, you should seek professional advice.
How Much Does It Cost To Close A Limited Company UK?
The cost of closing a limited company in the UK depends on a few factors, such as whether you’re applying online or by post, and whether you need to file any final accounts or annual returns.
The average cost of closing a limited company is between £50 and £100.
Can I Close My Company If It’s In Debt?
If your company is in debt, you might be wondering if you can still close it. The answer is yes, you can close your company even if it’s in debt. However, you may need to put your company into insolvency if you cannot afford to repay the debts before closing the company.
If you don’t pay your creditors, your company could be forced into compulsory liquidation. This means that your company’s assets will be sold to repay the debts, and any remaining debt will be written off.
You should seek professional advice if your company is in debt and you’re considering closing it.
How Quickly Can You Close A Limited Company?
The process of closing a solvent limited company usually takes around 2 to 3 months. However, it can take longer if you’re applying by post, or if you need to file any final accounts or annual returns.
If your company is insolvent, the process of closing the company will take longer. This is because you will need to appoint an insolvency practitioner to deal with the closure of your company.
Can You Close A Limited Company Yourself?
Yes, you can close a limited company yourself. However, it’s important to bear in mind that there are a few things you need to do before you can close your company. For example, you need to make sure that all of the company’s debts are paid off. Otherwise, you could be held liable for these debts yourself.
You should also be aware of the tax implications of closing your company. For example, you might need to pay Capital Gains Tax if you sell any assets that your company owns.
Given the complexities involved in closing a limited company, it’s advisable to seek professional advice before taking any action.
What Tax Do You Pay When You Close A Limited Company?
When you close a limited company, you might need to pay Capital Gains Tax on any assets that your company owns.
You might also need to pay corporation tax on any profits that your company has made in the last financial year.
If you’re not sure whether you need to pay any tax when you close your company, you should seek professional advice from a qualified accountant. They will be able to advise you on your individual circumstances and ensure that you pay any tax that is due to avoid potential penalties.
Closing a limited company is a complex process, and it’s important that you understand all of the steps required before beginning this process. We hope that this guide has given you a deeper understanding of how to close a limited company.
We’d always recommend that you seek professional advice if you’re thinking of closing your company, especially if your company is in debt or you’re not sure about the tax implications of closing the company. An accountant is best placed to advise you on your legal obligations, as well as the most tax effective way to close your company.