With the current economic climate and the challenges facing the industry, we understand that the closure of limited companies is something that many have had to consider.
The process of closing a limited company as outlined below, is relatively simple. However, we wish to highlight that it is not necessary to close your limited company if you are working on an inside IR35 contract and may return to outside-IR35 working or wish to return to your limited company at a later date.
The options listed below are mainly aimed at solvent companies. For more information about how to close down an insolvent company, see the Government website.
Voluntary dissolution of your company, also known as being struck off, is simple and relatively low cost.
By completing a DS01 form, you can request that your company is struck off the register held at Companies House thus bringing an end to your business.
This method, whilst straightforward, does have its drawbacks. Once the company is dissolved, any assets held by it will be transferred to the crown. Because of this, assets must be taken and dispersed before the company is struck off.
There are also strict guidelines that will be imposed upon your company prior to its closure to be considered. Part of these guidelines being that you must endeavour to ensure that your company has not been active in the three months leading up to its dissolution, save for activities related to that dissolution.
A Members’ Voluntary Liquidation is particularly useful for companies with remaining assets to be dispersed. Through an MVL, assets of the company are not subject to Income Tax but instead are subject to Capital Gains Tax. Because of this, an MVL is seen as more tax efficient.
As part of an MVL, a company is appointed a licensed insolvency practitioner to provide guidance throughout the liquidation process. Despite the initial investment that an MVL poses, the increased tax efficiency in some cases can outweigh the money spent on the service.
For those considering opting for Members’ Voluntary Liquidation, MVL Online offer a simple service for a fixed fee. With over 25 years’ experience, MVL Online take away the stress of closing your company allowing you to focus on the future. For more information about their services take a look at the MVL website.
NB: Qdos do not receive any form of commission nor benefit from MVL Online should you choose to use their service.
The real difference when it comes to choosing between the two options for closing your company is with the remaining assets your business has.
For businesses with a final net asset value less than £25,000, opting for a voluntary dissolution (striking off) and extracting the funds yourself is a cheap and easy way to close your company as you will still receive capital gains tax treatment.
If, on the other hand, your company has a final asset value in excess of £25,000, an MVL is a worthwhile investment from a personal tax perspective, as this will be taxed as dividends for an individual rather than capital gains. The use of a licensed insolvency practitioner distributing assets in a tax-efficient way is invaluable in these circumstances.
You should always seek advice from your accountant as to the best option for your business.
There are always other options. One such option is to instead make your company dormant. If you are unsure about the future of your company, you might choose to make your company dormant, effectively pausing your business for the time being.
By doing so, this affords you longer to effectively wait and see what the future holds for the industry and for your business. You do not have to inform HMRC of the closure of your company until you have made a solid decision either way.
It is important to note that you will still be required to file some of the same tax returns as before, for example reporting ‘nil returns’, showing to HMRC that the business is no longer currently trading.
If you are going through the process of closing your limited company, take a look at our article about what that could mean for your IR35 insurance and liability. Sign up to our monthly newsletter to keep up to date with relevant industry news and updates.
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