Closing down your company is a tough decision to make. But with the economic outfall from the pandemic, a lot of business owners may have to face that unfortunate task.
The best outcome for any entrepreneur is to sell their business, but if that isn’t an option closure is necessary.
While setting up a business is fairly simple, closing one down means following a more specific set of rules. You cannot just decide to stop trading!
You first need to consider the financial health of your business before you close down. Ideally, it should have no debts, so you must ensure any outstanding money you owe is paid. If the company cannot pay its creditors, such as suppliers, the company must be liquidated, which is a different process for closure.
Usually, this will be done through a members voluntary liquidation (MVL). There are other forms of liquidation, which we will look at in our next blog.
Close down without debts
If the company has been able to pay all your debts, such as corporation tax, loans and suppliers, then you do not need to liquidate it.
Instead, the company must be struck off and dissolved from Companies House. Their website clearly explains the stages.
Before you close down your company
There are certain conditions to fulfil before you can apply to close down the company. These include:
- The company has not traded in the last 3 months and not changed its name.
- HMRC must have been informed, and they will expect final accounts to close trade and for taxes to have been settled.
- Account for any surplus funds you intend to extract from the company by way of salary, dividend or capital distribution. You may need to speak to an accountant to help you through this process.
- Creditors must be told prior to the application and a copy of the strike off form should be sent to them within 7 days of it being filed.
Fill in the form
To close the business, a form called a DS01 must be filled in by the directors. It’s easy to complete and you can either download the form and post it or fill it in online. There is an admin fee of £10 to submit a printed form or £8 if you do it online.
How long does it take?
The strike off process takes about two months from when you apply, and this is set by Companies House, who will carry out a number of steps. They will:
- register the application for strike off on the company’s public record;
- acknowledge this by notifying the company at its registered office address (this could be your accountant’s);
- publish a notice proposing the strike off in the Gazette so any interested parties can object to the company closure – for example HMRC if tax returns or accounts are outstanding.
Don’t forget the bank
Business bank accounts will be frozen when the company is struck off, so make sure you haven’t left any money in the account. If you do, it will be passed to the Crown before the close down is finalised. It may seem obvious, but it can be easy to be caught out.
If you’re self-employed
If you are self-employed and want to stop trading as a sole trader, or you are leaving a business partnership, you are legally obliged to tell HMRC.
It’s fairly painless and it’s simply about letting them know that you are ceasing trading. HMRC will need to see that you have tax returns up to date and don’t have outstanding payments to make.
Should you be insolvent, you should look at an individual voluntary agreement. If you owe money when you close, creditors could take you to court. As you are not limited you are personally liable and could lose personal assets.
If you need more information about your setting up or closing a business, we’re happy to help. Contact us today for details.