Guide to Closing a Limited Company
Do You Need to Close Your Limited Company?
So, you've decided to set up a limited company for contracting in the UK, and you've thrown yourself into making that business a success. When you first start your own business, setting up a limited company is an exciting step toward becoming your own boss, taking charge of your career and turning your skills into a lucrative venture. It's hard work, but it's exciting. Whether you're setting up a limited company for contracting in the UK or you're looking to expand your business operations, the process of making your company limited offers a whole host of benefits. But, as your business evolves and grows, there may come a time when you need to close your limited company.
At G oLimited, we know that the excitement of setting up your own limited company can dwindle over time and - for a number of reasons, which we'll go into below - you might decide to draw a line in the sand, close the company and move onto your next venture. Whether you've decided to wind up your business or you're transitioning to a new opportunity, it's important to understand the process and the steps involved in closing your limited company. After all, you'll want to do it properly.
Why Might You Need to Close Your Limited Company?
No two businesses are alike and no two experiences as a limited company contractor are the same, so there's a whole host of reasons why you might decide to close your limited company. Some of the most common reasons for closing a limited company include:
The Business is No Longer Making a Profit
If your business is no longer bringing in enough money, or it's no longer a sustainable business, closing it might be the best option. This might be the case if you're setting up your own limited company for contracting and your contracting work has slowed down, or if you've been offered a full-time position and you've decided to take it.
You've Decided to Retire or Your Personal Circumstances Change
If you've reached an age where you're thinking about retiring, you might decide to close your limited company. You might also be led to closing the company if your personal circumstances change in a way that makes being a contractor no longer a good fit for your lifestyle.
Your Business is Being Acquired or Merged
If your business has been bought by someone else, or if it's merging with any company, you'll likely have to close the company as part of the process. For example, if you're selling your business, you'll probably have to close the limited company so another person or business can buy it.
You're Trying Something New
Though you might have had a clear career path when setting up your limited company, things change. You might decide to pursue another professional opportunity, or you might decide to go back to employment. Your love for contracting may have decreased and you're keen to focus on other things. If that's the case, you'll probably want to close your limited company. If you don't, you'll have to stay on top of admin and costs, even though you're not really using the company.
Step By Step Process of Closing a Limited Company
It doesn't matter whether you've decided to close your limited company because you're no longer contracting or because you've moved to a different business venture, the process is the same. It's also relatively simple and straightforward, once you know what to do. Much like the process of setting up a limited company for contracting in the UK, there's a step-by-step guide for closing one.
Step 1: Settle Outstanding Any Debts and Liabilities
Before you can close your limited company, you need to make sure that all debts, liabilities and any outstanding tax payments are settled. This includes paying your suppliers, paying outstanding VAT or Corporation Tax, and finalising any employee wages, bonuses, pensions and taxes. You'll need to provide evidence that all of the debts have been cleared before closing the company.
Step 2: Inform HMRC and Other Stakeholders
You can't decide to close a limited company and do so without telling a few key people. You need to let HMRC know that you're intending to close the company, and make sure that you've submitted your final tax return and paid any outstanding taxes. You'll also need to let your clients, suppliers, investors and stakeholders know that you're closing the business.
Step 3: Close Business Bank Accounts
Once all of your financial obligations are settled, you can move on to closing your business bank account. Any remaining money can be distributed to shareholders, but you need to make sure that you consult with an accountant to ensure that the distribution of these funds is handled in compliance with tax laws.
Step 4: Complete the Necessary Paperwork
To formally close your limited company, you'll need to complete certain paperwork, which is required to officially dissolve your limited company. If you don't submit the right paperwork, the company will remain trading until you do. These documents can be submitted online or by post to Companies House.
Step 5: Final Accounts and Tax Filing
Before you can officially close your limited company, you will need to file final accounts with Companies House, including the final set of financial statements. Your final Corporation Tax return should also be submitted to HMRC. This ensures that everything is up to date before you draw a line under your business.
Step 6: Dissolve the Company with Companies House
Once all of the paperwork is ticked off your 'to do' list and any financial matters are handled, the next step is to apply for your company to be officially dissolved with Companies House. Companies House will process your application and remove your company from the official register, putting an end to it being a legal entity.
Step 7: Inform Shareholders and Distribute Remaining Assets
Once you have paid off debts and taxes, you might still have some money left over. These funds should be split amongst shareholders according to the company's articles of association. You will need to inform all shareholders of the closure, making sure everyone's away that the company has come to an end.
Step 8: Confirmation of Closure
Once your application has been accepted and processed, Companies House will send you confirmation of the company's closure. This can take a few weeks, and you'll need to keep any confirmation letters for your records. Who knows when you'll need them in the future.
Tips for Closing Your Limited Company
As a contractor in the UK, there's a lot of excitement around setting up a limited company, but there tends to be less excitement when it comes to closing one. To make sure the process is as simple and stress-free as possible, take our top tips on board.
Work with an Accountant
Closing a limited company involves various tax implications, especially regarding the distribution of assets and final tax filings. To make sure that everything is done right, work with a professional accountant, who can ensure that you're compliant with all tax regulations. They'll be able to help you navigate the process smoothly.
Understand Your Tax Obligations
Be aware that even after you have closed your limited company, there may be ongoing tax responsibilities. For example, if your business has made any taxable profits or if dividends were paid out, you may have additional information to file with HMRC.
Check for Outstanding Liabilities
Ensure that all of your financial obligations are settled before dissolution. Any outstanding tax liabilities or debts can delay the closure process, causing more stress than is necessary.
Consider a Voluntary Strike-Off
If your company has been dormant - meaning that it hasn't been trading for some time - you may be eligible for a voluntary strike-off. This is a faster and simpler way to close a business. This process allows you to apply directly to Companies House to have your company removed from the register.
Keep Detailed Records After Dissolution
Even after your limited company has been officially closed, it's a good idea to keep detailed records for at least six years. HMRC can still request access to your company's financial documents for auditing or tax purposes, so you'll need to have these to hand. Storing these records in an organised manner ensures you're prepared in case of any future inquiries.
Closing Limited Company FAQs
At Go Limited, we know that closing a limited company is a big decision, and whether you're a contractor in the UK or running your own business, it's important to understand the steps involved. By following our step-by-step approach and settling all of your obligations, you can ensure a smooth and efficient company closure. If you're considering setting up a limited company for contracting or are in the process of winding one down, it's a good idea to seek expert guidance to make sure that everything is handled correctly.
