How to Close a Limited Company the Right Way
Not every business succeeds, and not every partnership blossoms as expected, meaning that it’s not unusual for the time to come when the principals involved might want to close a limited company and move on to the next phase in their professional lives. Closing a limited company involves more than just closing the doors though, especially when it comes to tax issues.
But how do you close a limited company the right way? That’s the issue we are going to explore here.
Closing a Limited Company: Getting Started
Although closing a limited company is a relatively simple process, there are certain conditions and requirements that must be carefully considered. The dissolution process is a low-cost way to close your company, and the company is removed from Companies House’s register.
There must be no active or pending insolvency proceedings, and once a closure date has been set, you must complete a checklist of tasks before submitting the application. During the three months leading up to the company’s dissolution, it’s critical that it doesn’t:
- Change its name
- Actively dispose of any stock or assets
- Continue to trade
Because of that last item, you’ll need to be very sure that you really want to lose the limited company for good, as once the wheels are in motion it’s not easy to stop the process.
Your Payroll and HMRC Obligations
We’re sure that you have already realised that in dissolving your limited company you have certain obligations to HMRC to meet. You will need to:
- Notify HMRC of your plans to close the business.
- Any VAT registration should be canceled.
- Complete your payroll, including the distribution of P45s to all employees and directors.
- Request that HMRC close the payroll scheme after all PAYE and NIC obligations have been met.
- Fill out a P35 end-of-year payroll summary and send it in. If you have to make employees redundant, you must consider their redundancy payments as well as any other liabilities, such as wages or holiday pay they may be owed.
Final Accounts and Filings
You can complete and file the company accounts and tax return once all transactions have been processed, making sure to inform HMRC that these are the final accounts before dissolution.
You will be notified of the company’s Corporation Tax liability, which must be paid as soon as possible because dissolution cannot take place if there are outstanding liabilities.
Prior to the dissolution date, any remaining assets should be divided among shareholders. Any unallocated assets or cash in the bank will go to the Crown once the company ceases to exist, as they are deemed to have no legal owner.
Formalising the Strike Off Application
This is another important stage in the process of closing a limited company. When all the above is complete, a majority of the directors must sign the DS01 application form, that should be sent to the relevant Companies House address with a £10 fee.
After Companies House has approved the form, a notice of dissolution must be published in the local newspaper as well as on the company’s public record. One of the most crucial aspects of the company closure process remains to be completed: informing all interested parties that the limited company is being dissolved.
Letting the Right People Know You are Closing Your Limited Company
Members of staff, creditors, pension fund trustees, HMRC, shareholders, and any directors who did not sign the application are all interested parties. Notification is given in the form of copies of the application form, which must be sent within seven days. These rules apply to anyone who becomes an “interested party” after the application has been submitted.
Creditors are a crucial group in this stage of the process, as dissolution cannot take place without their approval. Any creditor who has not been notified and is owed money has the right to request that the company be restored at a later date. Third-party objections are also allowed under the terms of the public notice. Once the company has been dissolved, another notice is published in the newspaper stating that it no longer exists.
What Happens If Someone Objects to the Limited Company Closure?
If someone objects to your strike-off application, they must write to the Registrar of Companies explaining their objection and supplying evidence to back it up. They may believe that your company still owes them money, or that you have made a false statement.
At this point you would need to formally answer these claims, submitting evidence supporting your position. The dissolution will be stalled until these outstanding issues are resolved to the satisfaction of the Registrar of Companies.
When Closing a Limited Company, How Long Will it Really Take?
From the time of application to dissolution, it takes at least three months – this is the time during which creditors can object. However, depending on the structure and complexity of your company, the process may take much longer.
You must also account for the three-month period preceding the application, during which you must wind down the company’s affairs and make dissolution preparations. This is not a procedure that can be rushed; it necessitates meticulous planning and even more careful execution to ensure that no errors occur.
This is where, if you haven’t used one before, you should probably consult an accounting expert. Pearl Lemon Accountants provides expert advice to ensure that all requirements are met prior to filing for company dissolution and closing a limited company, as well as to assist if any objections arise. Contact us to learn more.
What happens to the money when you close a limited company?
If money is left in the company’s bank account after settling all your debts, then the money should be given to the organisation’s members according to their ownership percentage.
How much does it cost to close a limited company UK?
In the UK, it can cost anywhere from £3,000 to £7,000.
How much tax do I pay if I close my limited company?
Closing a limited company can cost either 18% or 28% in taxes.
Want more detailed information? Feel free to book a call with our experts!
How do I inform HMRC of a closing company?
All you need are two separate letters to inform HMRC. The first letter needs to let them know your overall intentions, and the second letter (from your shareholders) needs to confirm what is going on in the organisation and your reasons for closing the company’s doors.
Should I close my limited company or make it dormant?
It all depends on what you want to do. Dissolving a company means that you don’t see any likelihood of resuming regular operations in the future.
Maintaining a company dormant, however, means that the organisation has the opportunity to find an investor and be operational again (plus, making the business dormant also means you get to keep the company name).
How long does it take to strike off a limited company UK?
It takes three months or more to strike off a limited company in the UK.
If you want more detailed information, feel free to book a call with our experts.