With changes to off-payroll in the private sector legislation going live in April 2021, you may be considering the closing down of your limited company. Continue reading to discover the points you should consider when deciding whether closing down your limited company is the best option for your circumstances.
1. Look into your options for closing down your limited company
Ultimately, the way you close down your limited company will be determined by your business’s financial health, and there are many avenues you can take. If you are unsure, speak to your contractor accountant (if you have one) or a licensed insolvency practitioner who will advise you based on your business’s financial health.
Please be aware that when closing your limited company, whether voluntarily or involuntarily, the conditions around liabilities that are personally guaranteed will not change. If you took out a loan tied to a personal guarantee agreement, you would still be liable for this business debt.
Closing a solvent company
There are two ways to close a limited company with no debts – getting it struck off the Register of Companies through a process known as dissolution – or entering into a Members’ Voluntary Liquidation (MVL).
MVL is a tax-efficient way of closing down a business and distributing the company’s assets in good time. It is often the most favourable choice if the business has retained profits of £25,000 or more as the shareholders and directors can obtain the company’s value instead of being charged Income Tax and Capital Gains Tax.
Alternatively, if the capital gain released is less than £25,000, dissolving your company may be a better option. To dissolve a company, you must submit a DS01 form, which needs to be signed by all directors and sent to Companies House. The cost of striking off is £10, and this payment cannot come from the company.
Closing an insolvent company
If your company is insolvent, you can close it down via a Creditors Voluntary Liquidation (CVL). A CVL is the formal process of closing down an insolvent company and deal with all of its outstanding debts in the process. It does come at a cost, but opting for a CVL over compulsory liquidation will give you more control over the whole process and give immediate relief from debt. The assets will be maximised as much as possible to repay the debts, and outstanding debts will be written off once the company has been liquidated.
Make your limited company dormant
If your limited company is no longer trading, but you want to keep it for future contracts that are outside IR35 – it is possible to keep your limited company in a dormant state. Your company will still be registered at Companies House; however, you can let it become inactive for tax purposes. If you decide to make your company dormant, you must cease trading, do not conduct any business-related activities, and ensure no transactions are made via your business bank account. You’ll still have to file certain tax returns, but they’ll be “nil returns” to show HMRC you’re not trading.
Many contractor accountants (including Churchill Knight & Associates Ltd) offer a dormancy service for contractors who take assignments both inside and outside IR35. When working inside IR35, your limited company can be dormant and you can use our umbrella payroll service – should this be of interest (Churchill Knight 360). Contact us today and ask for more information about Churchill Knight 360.
2. Settle your tax affairs with HMRC
Before you close your limited company, there are a few things you need to consider:
- Deregister for VAT – if your company is VAT registered, you’ll need to inform HRMC of your decision to deregister your company for VAT via a VAT form 7
- Corporation Tax – you must inform HMRC that your company is no longer trading, so they don’t issue further reminders for Corporation Tax.
- Capital Gains responsibilities – you will need to sell or transfer ownership to yourself any equipment you purchased which the company owns. Please be aware Capital Gains Tax may be due on these items.
- PAYE Scheme – you will need to notify HMRC that your PAYE Scheme is no longer in operation, and it will need to be closed down.
3. Tie up loose ends before the company is closed
When you dissolve your company, you should ensure you tie up any loose ends as last-minute changes could delay the whole process. For example, during the strike-off process, creditors are invited to submit their claims. If a claim is submitted after the company has been struck off, it would have to be resurrected to resolve the claims. As the director, you must ensure you act in the interest of creditors and ensure all parties are satisfied and willing to progress with the dissolution. You must also be mindful of ‘Bona Vacantia’ when dissolving your limited company. Any undistributed funds, credit balances, or unclaimed assets will be transferred to the crown upon closure, and you will need to restore the business to the register to claim these.
4. Have you considered director redundancy?
If your company enters into administration or insolvent liquidation and has been trading for two years or more, you could claim director redundancy pay. You can apply for director redundancy at any time, as long as it is no longer than 12 months after entering company liquidation.
Churchill Knight has been supporting contractors for over 20 years
Churchill Knight & Associates Ltd has a range of contractor accountancy and umbrella payroll services, including tax planning and advice tailored to your circumstances and goals. If you’re looking to continue operating outside IR35 but appreciate some assignments that you take that fall inside the legislation, Churchill Knight 360 could be the perfect solution for your circumstances.
Founded by an IT Contractor in 1998, Churchill Knight has become one of the most respected contractor accountants in the UK. We’ve helped over 20,000 contractors with their accountancy requirements. As well as our accountancy services, we also have an industry-leading PAYE umbrella company and dedicated in-house personal tax department. Whichever service you choose, you can move forward with complete peace of mind. We are proud of the reputation we’ve built over the years, and our FCSA accreditation proves how committed we are to compliance within our sector. Keep reading…