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Shutting down your limited company

Shutting down your company can happen for any number of reasons. Broadly, there’s good and bad reasons that a company comes to the endof its life.

Happily, for most clients, this is because they are retiring, or have sold the trade and assets of the business, or perhaps there’s been a corporate restructure/merger and you’ve got a surplus trading entity.

Essentially, the company is still solvent, you just don’t need it anymore. So far so good.

Sadly, it will occasionally be the case that a company is insolvent and needs to be shut down because it cannot pay its debts. In which case you cannot legally strike off the company and you must appoint an Insolvency Practitioner (IP).

This isn’t me – we don’t get involved in insolvent liquidations – but I’m happy to put you in touch with someone who can help, just give me a call.

Strike off vs Liquidation

Right then, let’s get the jargon out of the way.

There are two ways to ‘close’ a company. The form terms are Strike-off (sometimes called ‘winding up’) and this is the easiest, quickest and cheapest option. However, there are times when you might choose a formal Liquidation, namely if:

  • The company’s net assets (including cash) are over £25,000, or
  • You want to claim Business Asset Disposal Relief, or
  • The company is unable to pay all its debts

Chartered Accountants like Blue Penguin are your friend when it comes to strike-off. Liquidations can only be performed by an Insolvency Practitioner, who we can put you in touch with.

The fees for liquidations are around ten times that of a strike-off. So, where you’ve got both options available, give me a call and we can advise which is going to be the best option for you.

The Solvency Statement

I can’t emphasise enough how important it is to take the strike-off process seriously, and not cut corners.

As part of the process, you’ll be required to make a solvency statement to Companies House, confirming that the company is solvent and has no outstanding debts.

If it later turns out there ARE any debts – especially re: Corporation Tax or old payroll liabilities – you’ll be personally liable for them. Ouch!

The Nine steps to strike-off

So, if strike-off is right for you, here’s a summary of the steps the company will need to go through. Your Chartered Accountant (that’s us!) can take care of almost all of these for you.

Stop Trading

Sounds obvious, but stop trading! From the moment you decide to strike off, the business should ONLY engage in transactions necessary to wind up the company. Otherwise, you could be personally liable for any debts.

If you have employees, then sadly they will need to be made redundant now. And that includes you, if you’re also on the payroll. You may wish to take specialist HR advice here.

Settle Your Debts

A company can’t be struck off if it has any debts, so repay these – including any money owed to you as a director. Of course, if you are still owed money by customers, you should collect these ASAP, or write them off if they aren’t worth chasing – once the company is struck off, they can’t be compelled to pay up.

Sell any assets

If the company has physical goods or machinery, these must be sold off. Shareholders can purchase these from the company but must pay the market value. Don’t forget about your website – if the domain name still has value, sell this too.

VAT De-registration

If applicable, advise HMRC that the company has ceased to make taxable supplies and that it needs to be de-registered for VAT. Submit your final VAT return, and pay any VAT due. As this is your final trading period, there may even be a VAT refund due.

PAYE and Pension De-registration

Having terminated all your employees, you need to close your PAYE scheme and pay any outstanding PAYE debts.

If you have a company pension scheme, they will also need to be made aware of the strike-off, and ensure all pension contributions are up to date.

Final Accounts and Corporation Tax Return

As per last year, you’ll need to complete a full set of accounts and tax returns. Depending on when you stopped trading, this might cover a period of less than 12 months – there is no need to wait until your normal financial year-end to file these.

Of course, if there’s any Corporation Tax due, you’ll need to pay that as normal.

Cash Distributions

Now that the company has nothing left but a bank account with cash in, it’s time to return this to the shareholders, in line with the rules set out in the company’s Articles.

The tax treatment of the distribution will be different for each shareholder – they must speak to their accountant to ensure that any tax is calculated correctly. Therefore it makes sense if the shareholders and the company have the same firm acting for them.

Closing the bank account

Sounds obvious, but once the account is empty, you’ll need to inform your bank and close the account.

Companies House

Having done all of the above, we’re finally now ready to strike the company off. Download a striking-off notice from Companies House – this needs to be completed by all directors, declaring that the company has no outstanding debts.

You will also need to send a cheque for £10; of course, this cannot be a company cheque as, of course, the bank account is now closed. That said, if we’re handling this for you the strike-off cost is included in our fees.

Once your application is received by Companies House, it is then a waiting game. The strike-off will be published in the London Gazette, and if there is anyone who believes the strike-off is not valid (e.g. if they are still owed money) they can halt the strike-off.

Banks, HMRC and credit reference agencies all scrape the Gazette data to make sure none of their customers are about to do a runner owing them money.

But assuming things go smoothly, you can expect the company’s name to disappear from the register within three months.

The Cost of Getting This Right

This blog is a general guide to the main things you need to consider when closing down a company. It’s not exhaustive, and everyone’s circumstances are different.

Our fee for a company strike-off will depend on the complexity of the organisation and is between £240 and £520 plus VAT. Alternatively, if you’d like to do this yourself but would just like some advice, then you can book a consultation using the button at the bottom of the screen.

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