How to close down a limited company


The two main ways of ending a company in the UK depend on whether there is sufficient money in the company for it to be able to pay all of its debts. Shortly after it stops trading, these debts may include:

  • Corporation tax for the final period
  • VAT for the final period
  • Outstanding PAYE and National Insurance on payrolls
  • Final accountancy fees
  • Any remaining amounts owed to trade suppliers
  • Bank loans or overdrafts
  • HP or lease agreements, or any other ongoing commitments
  • Money owed to directors or shareholders.


If the company cannot pay its debts, it will ultimately enter into one of the different types of insolvency proceedings. This usually involves an insolvency practitioner either taking over the company in order to keep it running while its finances can be restructured, or selling off the company assets in an attempt to raise money to pay the creditors. The conduct of the directors may also be investigated. More information is available on the Insolvency Service website.

Assuming that the company can pay all of its debts, there is a simplified way of closing it down. In a typical case, the steps would be as follows:

  1. The company should carry on no further business, and undertake no further transactions, except those which are necessary to wind it up.
  2. Anyone that the company owes money to should be paid, otherwise they may object to the company being dissolved in this way. The company bank account should not be emptied or closed until all company debts have been paid. Any loans to or from any company directors or shareholders should be repaid.

    If any vehicles or equipment have been bought on any form of hire purchase, leasing or finance agreement, then the finance company should be contacted to establish the options for ending the agreement early.

  3. A final payroll will be run for all of the staff. They will be issued with P45s. At some stage the company will need to make a final return of payroll information to HMRC.
  4. The company will apply to HM Revenue & Customs to have its VAT registration cancelled, using form ‘VAT 7′. A final VAT return will need to be completed, and there may be a VAT payment due.
  5. Any of the directors and the company secretary may wish to resign, though at least one director should remain in place to deal with the closure. Remaining as an unpaid director of the company should not affect their own personal taxes in any way.
  6. Dead end sign

  7. A final set of accounts will need to be prepared, and submitted to HMRC. They should be informed that the company has stopped trading and has no further taxable income, so that they do not object to the company being closed down.

    It is not usually practical to prepare the final set of accounts immediately after the company has stopped trading, as there may be some final expenses in the following weeks or months that may need to be included.

  8. Any corporation tax should be paid from the company bank account. This is usually the last payment to be made. The company generally has 9 months from the close of business to pay this tax, but the company cannot be closed down until it is paid.

    It should be clear by now that it is rarely possible to have the process fully wrapped up within a few weeks of making the decision to close down the company. It is normal to leave the company almost dormant over a period of months, while all the formalities are dealt with.

  9. Any money or equipment left in the company after all these expenses have been met should be paid out to the shareholders in proportion to their shareholdings, unless there are alternative provisions in the articles of association (this would be unusual). The company should consider how to extract these funds in the most tax-efficient way; there are some ideas here.
  10. After 3 months of inactivity, and once all the debts have been paid, the directors will be able to make an application to Companies House under Section 1003 of the Companies Act 2006 to have the company struck off. Companies House make a charge of £10 for this, and the application form (DS01 Striking off application by a company) can be downloaded from their website.

As an alternative to the company being fully closed down, it can remain ‘dormant’ on the register. Leaving the company dormant typically costs less than £100 per year, and it means that it can be used again, for any other purpose, without any delay or set-up cost. It also serves to reserve the company name for future use, and an older company has slightly more financial credibility than one that has just been incorporated. If the company is not going to be used for at least 3 years, then it is usually more cost effective to close it down, and then incorporate another company if one is needed.




10 Comments (oldest first)

  1. Dee

    Hi there,

    I would like to ask if you can help me. I set up two companies 6 years ago. One is LTD and the other is LTD by guarantee. They were never profitable for these 6 years. I would like to close these companies as there is not much happening at the moment and the cost of running them proved to be high. I am the only employee left. I would like to continue using a business name that was acting as an umbrella for these two companies as I would like to continue staying in the same industry. I thought of registering myself as self employed.

    1. Can you be director of the business as self employed or do you sign yourself as freelance officer or how?

    2. Do I need to send the latest accounts or accounts up to the date of closing of company or that does not matter? (I am due to send the accounts next week for the company by guarantee).

    3. Does closing the company have a bad sort of reputation for you as a director if you are to open new business or with a bank?

    4. How do you achieve this… “As an alternative to the company being fully closed down, it can remain ‘dormant’ on the register. Leaving the company dormant typically costs less than £100 per year, and it means that it can be used again, for any other purpose, without any delay or set-up cost” and do you suggest I go for it instead as the time might change and I might be starting to be profitable?

    There are rather many questions but I hope you can help me with answers.

    Thank you very much,

    Dee

    10 November 2014

  2. Admin

    I’m not sure whether these 2 companies are now insolvent, ie, they have any debts which they cannot pay, and whether any creditor or HMRC is likely to object to any attempt to close the companies. This would make a big difference.

    “I would like to continue using a business name that was acting as an umbrella for these two companies as I would like to continue staying in the same industry. I thought of registering myself as self employed.”
    If you are using a business name that has previously been used by a company, you will need to be careful that your business stationery and paperwork (contracts etc) make it clear what entity you are now using, whether it is you as a sole trader or one of the companies.

    Your numbered questions:

    1. It is certainly possible for a director of a limited company to also run his own freelance self-employed business, but he needs to keep each business separate.

    2. If you are intending to shut down a company by submitting form DS01 to Companies House, then it makes no practical difference whether or not you continue to file accounts at Companies House. HMRC might require a final set of accounts before they allow the company to be closed; it depends on how many years have elapsed since you last filed an “active” company tax return with them

    3. If the business is not looking to borrow money from the bank, then you should have little difficulty in opening a new account for either a sole trader or a limited company. As for your own business reputation, that would depend on whether or not the company was insolvent when it was closed, by how much it was insolvent, and the events leading to that insolvency.

    4. This is just a matter of undertaking no business or transactions using the company, but continuing to fulfil your obligations at Companies House, ie, file an Annual Return and a set of dormant company accounts every year, and keep the Companies House record updated with changes to directors’ details.

    11 November 2014

  3. smartix

    Hi anyone can help me?

    I am self employed, and also registered my company as an Ltd 2 weeks ago. No profit made at all. I would like to close the ltd but I would like to keep the name and stay self employed. Is it possible?

    Which form do I need to fill in? Being self employed, can I be a small business owner? Can I have subcontractors later?

    Do I need a business account if I am self employed? Is it a bad thing if I close the Ltd after 2 weeks?

    Thanx
    Smartix

    18 November 2014

  4. Admin

    “I would like to close the ltd but I would like to keep the name and stay self employed. Is it possible?”

    Yes, bearing in mind the company had Limited or Ltd at the end of its name, but as a sole trader, you won’t.

    “Which form do I need to fill in?”

    To close the company, use form DS01, as referenced in the article. You must wait for 3 months, and you will see from the notes on that form that you must send a copy of it to everyone who is owed money by the company.

    “Being self employed, can I be a small business owner?”

    Being self employed, you are a small business owner.

    “Can I have subcontractors later?”

    Yes. There is no difference between limited companies and sole traders in this respect.

    “Do I need a business account if I am self employed?”

    http://www.brighton-accountants.com/blog/sole-trader-bank-account/

    “Is it a bad thing if I close the Ltd after 2 weeks?”

    No.

    19 November 2014

  5. Roy

    Hi,

    My limited company was dissolved in 2013 and the £55,000 bank account balance was transferred to my joint personal bank account.

    I have been told that this £55,000 split equally with my wife (who was a director of the dissolved company) needs to be taxed at 32.5% less a 10% tax credit.

    Is this correct?

    We have already paid corporation tax on these funds and we are now are being subject to further taxes.

    Many thanks,

    Roy

    19 November 2014

  6. Admin

    “I have been told that this £55,000 split equally with my wife (who was a director of the dissolved company)…”

    Whether or not she was a company director is irrelevant. What matters is whether or not she was a shareholder.

    “…needs to be taxed at 32.5% less a 10% tax credit. Is this correct?”

    It depends how the company was closed.

    If it was closed by a formal liquidation process using an insolvency practitioner, the £55,000 would be subject to capital gains tax. You would probably be entitled to claim Entrepreneurs’ Relief, which would leave very little tax payable.

    If it was closed by a DS01 application, then the closing assets of the company are taxed as though they were dividends to you. This might mean extra tax to pay; it depends on your other income. The calculation is explained here: http://www.brighton-accountants.com/blog/maximum-dividends-tax/.

    19 November 2014

  7. Sam

    Hi we are trying to close down our small ltd company do we need an accountant or can we do it ourselfs please? As accountant wants to charge £250 ?

    5 December 2014

  8. Admin

    With so little information, I cannot provide a meaningful answer.

    What does a “small” company mean to you? According to Companies Act 2006, it is generally a company with a turnover of under £5.6 million.

    Is it solvent?

    Does it have surplus funds?

    Has it been trading recently?

    5 December 2014

  9. KE

    Hello, I set up a small company (just me as a director) a little over a year ago and have just sent in form DS01 to dissolve the company. It made no profit and I still have some stock left over, although I paid for that from my personal money as a loan to the business. I never submitted any company accounts - my first reminder was last month and as soon as I received that I sent in for DS01.

    Do I need to file company accounts, or not now that the company is being dissolved? I have also just received a corporation tax return request. As the company was not profitable and technically made a loss, do I need to fill this in and submit it to hmrc?

    Many thanks in advance for your help.

    14 December 2014

  10. Admin

    You do not need to file any accounts at Companies House, if the company is in the process of being dissolved.

    If HMRC see that a DS01 application has been made to strike off your company, and they have requested a corporation tax return from you, they might object to the dissolution. Filing a corporation tax return showing a loss will considerably reduce their interest in objecting to the company being wound up.

    14 December 2014

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