If you are a Contractor and you no longer need your Limited Company, for whatever reason, then you can close it and remove it from the Companies House register. This will mean it will no longer exist.
Always ensure that you take advice before taking any action.
Before you start, think again
Closing a Limited Company can, under some circumstances, be costly and time consuming. Make sure that you will not need it again.
If you are planning to generate income via another route, for instance a permanent job or working through a ‘Contractor Umbrella Company’ for a short period, then it might be cheaper and less hassle to make the company dormant.
If you do not need the company for three years or over, then it is more cost effective to close the company and re-incorporate it again in the future. Dormant companies can cost up to £100 per year to maintain.
Voluntary striking off and dissolution
If you have no further need of the company, then you can make an application to Companies House for the company to be ‘struck-off’ the register. This means the company will cease to exist, after three months.
If you are closing the company because it has fallen into financial difficulties then you cannot opt for the voluntary striking off route. Make contact with a professional adviser immediately, as there is a different process, to follow.
If the company is not in financial difficulty, and that the company that has only been used to provide the services of the contractor then it can be struck off if, in the previous three months, it has not:
- issued any invoices and has only paid creditors
- has had a name change
- Engaged in any activity (except those required to strike off the company)
On the basis that the above conditions are satisfied, you can start the process of closing the company.
Action Plan
In practice, assuming they are the sole director and shareholder with no creditors or employees, you will need to notify the following people:-
- HMRC (for corporation tax, payroll and VAT purposes)
- The company’s business insurer
- The company’s banker
- Accountants and other professional advisers.
For companies which have traded for over 3 years, the list of people to inform may possibly be longer. The Company Director and any additional shareholders, must be informed in writing and be sent a copy of the application for striking off, Form DS01. Company Directors must sign the striking off request.
Closing accounts, payroll, VAT registration and tax return
Company accounts must be prepared for the period from the last annual accounts to the final date of trading. These accounts must be submitted to HMRC with a Company Tax Return for the period and a request to close down the corporation tax scheme for the company, explaining that the contractor’s company will be dissolved.
It is important to inform the Inspector of Taxes for the company’s payroll to advise them that the company has ceased trading. HMRC will issue a final P35 Employer’s Annual Return, which the contractor will need to complete and return. Any final balance of PAYE tax and National Insurance Contributions should be paid.
You should also inform HMRC that the company has ceased trading and that they should be deregistered for VAT. HMRC will send a simple questionnaire to complete.
If the company held stocks, or items like furniture and equipment, then you might need assistance from your accountant to complete a final VAT return.
The Corporation Tax, payroll and VAT are all different departments within HMRC, so you must contact all three departments.
Finalising paperwork and closing bank account
Any payments due to HMRC and other creditors should be made from the company bank account. None of these payments should be associated with trading, otherwise the company cannot be struck-off.
If there are any remaining assets in the business, such as cash in the bank account and tangible assets, such as computers or furniture, these can be paid to the shareholders as a final dividend, in this case yourself.
If there are significant reserved funds in the company (more than £35,000) then a Member’s Voluntary Liquidation (MVL) is a tax efficient route of extracting the cash with only 10% tax paid. Always take advice.
Capital Gains Tax (CGT) liabilities will arise from the final payments to the shareholders, so you contractor should take advice from your accountant about the most tax efficient way of handling these payments.
Only when all the payments have been made should the bank account be closed. Note that any cash or assets left in the business after the company’s date of dissolution automatically goes to The Crown – basically the accounts get frozen and the government gets it!
Applying to Companies House
Once the final accounts and tax return have been sent to HMRC, the final dividend paid and the bank account closed, plus other loose ends such as reassigning the ownership of domain names, then you should submit Form DS01 to the Registrar at Companies House, with a fee of £10.
On the basis that there are no complications, which will be the case for most situations, the Registrar at Companies House will advertise the dissolution of the company in the London Gazette.
This is likely to be a formality, as there should be no creditors, shareholders or directors to object; so within nine months the company will be struck off and cease to exist.
Then, for you, this will be the end of a huge burden off your shoulders and hopefully a profitable chapter in your life.
Next Steps
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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