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In the UK it is remarkably easy and cheap to form a limited company. For less than £100, perhaps even less than £50, you can have a company formed in a matter of hours. This compares to the situation in many other EC countries where the costs can run into thousands and it can take weeks, if not months, to get a company registered.

However, if your business has come to the end of its life, either because you can’t rescue it or because you no longer want to keep it going, you will find that closing down a UK company can be far from simple.

Liquidation

The normal way to close down a company is by starting a process called “liquidation” or “winding up”. This is a legal process in which a liquidator is appointed to wind up the affairs of a company and at the end of the process the company ceases to exist. This process does not mean that all the creditors (those to whom the company owes money) will get paid.

There are basically three different types of liquidation:

  • Members’ Voluntary Liquidation: this is when the members (shareholders) of a company decide to put it into liquidation and there are enough assets to pay all the debts of the company. The members appoint and pay a liquidator themselves (or out of the assets of the company).
  • Creditors’ Voluntary Liquidation: this is when the shareholders decide to put the company into liquidation but there are not enough assets to pay all the debts of the company. The creditors appoint and pay a liquidator themselves (or out of the assets of the company if it has any).
  • Compulsory Liquidation: this is when a court makes a “winding-up” order for the company to be wound up, usually on the petition of someone who is owed money by the company, although the directors may also apply for a winding up order, usually because neither they nor the shareholders are able or willing to pay the fees – which can be high – for a voluntary liquidation. The court appoints and pays for a liquidator but can recover all or some of that from the sale of any assets.

If your company is unable to pay its debts it is said to be insolvent and should cease trading or the directors may become liable for the debts. If you suspect that the company is insolvent you must take professional advice and may need to liquidate the company, although it may be possible for licensed insolvency practitioner or other business rescue advisor to negotiate arrangements with those to whom money is owed to keep the business trading. Note that being unable to repay shareholders does not make a company insolvent. They knew when they invested they could lose their money and are at the very bottom of the list of creditors who would only get paid after everyone else had been paid 100%.

So, take appropriate advice. However, there is an alternative to liquidation which I want to discuss next.

Dissolution

This is a simpler and cheaper method and is ideal for closing down companies which have no debts. However it can sometimes be used to close down companies which are insolvent – though this cannot be guaranteed.
In a typical case of a solvent company the steps would be as follows:

  1. The company should cease trading and carry out no further transactions, except those which are necessary to wind it up.
  2. Anyone that the company owes money to should be paid; otherwise they may object to the company being dissolved in this way. The company bank account should not be emptied or closed until all company debts have been paid. Any loans to or from any company directors or shareholders should be repaid.
  3. If any vehicles or equipment have been bought on any form of hire purchase, leasing or finance agreement, then the finance company should be contacted to establish the options for ending the agreement early.
  4. The company must apply to HM Revenue & Customs to (HMRC) have its VAT registration cancelled, using form “VAT 7” A final VAT return will need to be completed, and there may be a VAT payment due.
  5. If the company employs staff they should be issued notice and a final payroll run for them (bearing in mind that they may have redundancy payments due to them) and P45s issued. At some point the company will need to make a final P35 return of payroll information to HMRC.
  6. Any of the directors and the company secretary may wish to resign, though at least one director should remain in place to deal with the closure. Remaining as an unpaid director of the company should not affect their own personal taxes in any way.
  7. A final set of accounts will need to be prepared, and submitted to HMRC. However this is unlikely to be possible immediately after the company stops trading as there will be further expenses so a letter should be sent to the tax office informing them that the company has stopped trading, has no further taxable income, and will apply for dissolution in due course. Mention that final accounts will be forwarded in due course. If you do not do this then HMRC may object to the company being closed down. 
  8. Any corporation tax should be paid from the company bank account. The company generally has 9 months from the close of business to pay this tax, but the company cannot be closed down until it is paid.
  9. Any money or equipment left in the company after all these expenses have been met should be paid out to the shareholders in proportion to their shareholdings. It may be worthwhile for the company to apply to HMRC to have such payments treated under Extra Statutory Concession C16. This treats all such final payments as capital gains instead of dividends and may result in less tax being due.

Once 3 months have passed since the business ceased trading the directors (or a majority of them) can make an application to Companies House to have the company struck off. You can get full details of how to do this from the Companies House website. There is a £10 fee and you can download all the forms free of charge.
 
If the company is insolvent then it still may be possible to use this process, however to do so you will need to get approval from all those to whom the company owes money by writing to them with a notice of intention to have the company dissolved. You have to confirm you have done this before Companies House will process the dissolution and if it later is proven that you didn’t write to everyone you could be guilty of perjury.

You probably will need advice on what to say in the letter but in general you need to explain that the company is insolvent, cannot pay its bills, and cannot continue to trade. Tell them that the directors want to dissolve the company but that if creditors object the company will have to go into liquidation and as there are no funds to pay for a voluntary liquidation one of them will have to petition the courts at their own cost.

Be aware however that even if trade creditors don’t object it is possible that HMRC will object if substantial sums of tax (Corporation, PAYE/NI or VAT) are due unless they can agree a repayment schedule with the shareholders or directors taking on personal liability. In this case, get professional advice before signing anything.

341 Responses to “How To Close Down Your Limited Company”

  1. James Green says:

    Hi James; I can’t comment on the motives of your accountant, but from what you say there should be no need for a liquidator to close your company down. In theory you can do the job yourself but there are potential pitfalls you have to avoid so if you need help James Green & Co can sort it out for you – and we don’t charge silly money either!

  2. James says:

    Hi James, I have lost the heart to run my company any more and just want to cease trading we are still turning a small amount of money but after this summer we want to stop totally. I’ve been told by my accountant that it’s going to cost us in the thousands to get the company dissolved as we will need a liquidator to do it etc. We owe no money what so ever and our books are all up to date. I’m just wondering if he is trying to pull a fast one and get money out of us as he knows we are a bit wet behind the ears when it comes to this sort of stuff.

  3. Nichola says:

    Hi my partner was in a business that has now gone into
    Liquidation. He was getting diviends and has been told by the liquidation company he has to pay them back, is this true? He has never signed or seen the books of the company. Could u please e-mail me Thanks

  4. Geoff says:

    Hi James
    Our retail ltd company has run into financial difficulties an I need to close the company and liquidate. The only debtor would be the VAT man approx. £2000.00 and rent arrears £10,000.
    There is no money left in the company to pay a liquidator.
    I personally do not have any funds left .
    Please advise can I liquidate the company myself ? Thanks Geoff

  5. James Green says:

    Mike, in that case you can make a capital distribution. Section 1030A of the applicable legislation allows that where a company intends to make or has made an application for striking off and the company makes a distribution in anticipation of striking-off then, provided two conditions (see below) are met, the distribution is not regarded as income and therefore can be treated as a capital distribution.

    The first condition is that at the time of the distribution the company has collected, or intends to collect, its debts and has paid off or intends to pay off its creditors.

    The second condition is that the total of all distributions does not exceed £25,000. If a distribution is made within section 1030A and after two years the company has not been dissolved or has failed to collect its debts and pay off its creditors then the capital distribution will be disallowed and tax will be due as a dividend.

  6. Mike Carter (Wokingham) says:

    Hi,
    Many thanks for the prompt response to my earlier enquiry.
    As one of us is a higher rate tax paper, would it be acceptable to take the remaining £1.5k as a capital distribution ? This would be below the liability threshhold for Capital Gains tax, so seems on the surface to be worth considering. Or would it be against HMRC rules to do that.
    Many Thanks again
    Mike

  7. James Green says:

    Hi Mike, yes the company owes you £4.5k so you can take that without any tax implications. The remaining £1.5 can be taken as a dividend. As Corporation Tax will have been paid on the company profits unless either of you are higher rate taxpayers no further tax will be payable.

  8. Mike Carter (Wokingham) says:

    Hi
    My wife and I are equal shareholders in Limited Company that has not traded for several years. We have kept the company going, just in case we wanted to start trading again, but we are now both so well settled in our respective employments that this is unlikely now to happen. Added to which the various annual fees that have to be paid eg Companies House ( and now Business Bank Account monthly charges), I can see the bank balance being steadily eroded.
    We’re not talking about a huge monetary amount, but it’s enough that I want to distribute it to the shareholders (my wife and I) in the most tax-efficient manner.
    The essential balance sheet details are (in very rounded figures):
    Cash in bank = £6.0k
    Creditors= £4.5k (Director’s Loan Account – No other creditors)
    Net Current Assets = £1.5k
    I’m not very good with this stuff, and dispensed with the services of my accountant long ago, but could you advise please what the Director’s Loan Account represents. Does that mean it’s my money, and I can just take it out without any tax implications. I am the sole director, and my wife is the Secretary.

    Any advice will be much appreciated.
    Best Regards
    Mike

  9. James Green says:

    Hi Bob, you have outlined the options perfectly well though it could also be possible to pay some of the excess cash as dividend and some as capital repayment. This may depend on the number and value of shares in issue. Rather than discuss your personal circumstances in a public forum I will write to you more fully at the email address we have on our system. This may not be until Monday. Regards.

  10. Bob says:

    My wife and I are joint shareholders in a Limited Company. The company has ceased trading with zero income for current year + £41,000 retained profit.

    I understand the cash should be returned to the shareholders either as a dividend (which will be taxable on the shareholders but who will get credit for the corporation tax already paid so unless they are higher rate taxpayers they probably won’t have to pay more tax) or as a return of capital (distribution) which would attract capital gains tax.

    “who will get credit for the corporation tax already paid” How does that work?

    I note that one can apply to HMRC to have such payments treated under Extra Statutory Concession C16. This treats all such final payments as capital gains instead of dividends and may result in less tax being due?

    Would this be beneficial to us? We shall be basic rate tax payers with have no other Capital gains.

    What do we do with company owner assets e.g. computers and office equipment?

  11. James Green says:

    Simon, if you sent a copy of the form DS01 to the Council then unless they objected at the time they cannot recover money from the company now. However if you didn’t send them a copy (which is a criminal offence) or if you can’t prove that you did by having a receipt of posting or delivery then they could claim the money from you, as a director of the company who failed to carry out your fiduciary duties. It is also possible that when you signed the rental agreement for the company you provided a personal guarantee. Whatever you do do not allow the bailiffs to enter your house and inform them that you do not accept that the debt is due. I’d also ask your local citizens advice (or money advice) office for advice as it is you, not the company, who is being chased.

  12. Simon says:

    My Company was forced to close due to a fraud by two members of staff.
    This is an ongoing case with the Police. It left me with a loss of £211k and all my savings have gone as I have not been paid any money since July 2014. I filled in a DS01 form, however when I telephoned an insolvency help line they laughed and told me just to send off the form and not worry as I owe outstanding rent of £452 and thats it. The Council have now given me 7 days to pay this debt and have chased me at my home address and are threatening baliffs. I am on JSA, can’t work and am unable to pay for help or advice or this debt. What should I do?

  13. James Green says:

    Hi Annaliza, you will simply have to complete a form DS01 which you can get from Companies House in Cardiff or on their website. The form explains what you need to do and the fees involved.

  14. annaliza says:

    I created a limited company but i suddenly changed my mind not to go on with limited liability so therefore i want to cancel it, i have not started it yet. What will i do to cancel it?

  15. James Green says:

    Hi Ian, there are a few ways you can make contact. In the blogroll on the right side of the page you will find links to “Business Advice from Business People” as well as “International Tax Advice” and my own LinkedIn profile. Alternatively you will find a “Contact Us” link on the footer of every page.

  16. Ian says:

    Hi James,

    How do we contact you abouot accounancy questions etc direct for example if a person requires to know your services.

    Regards,

    Ian,

  17. Allan Gardner says:

    Very usefull article. I am 6 months away from retirement so want to get a heads up of what is need for our Ltd company.

  18. James Green says:

    Hi David. I’m sorry to hear that your business is going to close down because creditors haven’t paid you. I’ve got your email address and will drop you a line later today (or tomorrow at the latest) for more info.

  19. David says:

    Hi,

    Looking to close down the business, had a couple businesses that owed us money go to the wall, we have a £4000 overdraft and a £1200 VAT bill, what is the best way to proceed?

  20. James Green says:

    Hi Wendy,

    If they haven’t been paid they should (a) inform HMRC specifically that the company is trading whilst insolvent and (b) any one of them owed more than £500 can start an action against the company to wind it up in the courts. They will have to pay a fee to the court but if they all chip in it shouldn’t cost too much. The company certainly appears to be trading whilst insolvent which would mean that the director or directors can be held liable for the debts of the company. If the director has been selling off parts of the business he may be acting illegally.

    If you contact me offline and tell me where you are based I can probably find a lawyer to advise you.

  21. Wendy says:

    A workforce has not been paid for 3 months, the office they worked from has been closed down. The MD will not put the company into insolvency. He has sold part of the company off. The workforce are in limbo, is there anything they can do to enforce insolvency?

  22. real hcg says:

    Thank you a lot forr sharing this with all of us you actually know what you’re talking about!

    Bookmarked.

  23. Ward says:

    This is a very nice post. Thanks for spending time effort to create a top notch article. I wish I could do the same but I procrastinate a lot and never seem to get anything done.

  24. Allan Hooper says:

    It’s a useful summary – don’t forget also employees which are often a factor in closing a company, on any basis.

  25. James Green says:

    You probably can’t close the company down with an outstanding DLA. Have you paid tax on the outstanding amount?

  26. Lewis Scott says:

    I am currently the only director in my company, I have HMRC chasing me for £20000 in historic debts which I don’t have. Unfortunately I have a DLA of over £30000.

    If I were to get personal finance to pay HMRC and pay for it via the business account once all debts are paid can I then close down without fear of having to pay back the DLA

  27. Elizabeth says:

    Hi, We have an old tax debt which we have been trying to pay back but the HMRC kept ‘losing’ the payments and we have been trying to clear up the mess. We still want to repay the outstanding debt (was circa 180k now 90k) at £5k per month but HMRC want £10k per month. How can we make them understand we cant generate £10k per month. One tax officer in particular is insisting on trying to make us bankrupt!

  28. Clarissa says:

    Spot on with this write-up, I think this web site deserves attention and I’ll be returning to read more, thanks for all the information!

  29. Jo says:

    Hi
    We requested that our business was closed down in January and the £10 cheque and DS01 sent to the accountant in Feb 2013. The company ceased trading 21 December 2012, but income from previous months were paid in to bus acc in jan and feb 2013.

    I have just found out today that the accts have not even submitted the DS01 to companies house or informed HMRC of anything yet. They have said they have to send the final acoounts with the DS01 to apply to close the company. I think this is wrong.
    Can you please advise? the accountants were the reason we chose to close the company, because of a few errors.
    Thank you.

  30. James Green says:

    Sorry Kathi but I can’t really advise you in relation to a US company.

  31. Kathi Daniels says:

    My brother and I have a small S-Corp. that we are both 50% shareholders & 50% directors. My brother basically let me go which my attorney (who I am not happy with) said that one director can not fire another director. I am trying to get him to buy my shares. This is a family business and after my father passed he turned the co. to us. The co. has been losing money for at least 4-6 years. We have borrowed several $100,000 dollars and still the co. can not make a profit. He has not paid me and I have been basically fighting with my attorney that one director can not fire another director. I feel the co. needs to be closed down. What can I personally do?

  32. James Green says:

    Hi Sunil. Yes you can apply to have your company dissolved following the procedures outlined here. Alternatively my company can do it all for you at a cost of £60 (including VAT).

  33. Sunil says:

    I started a Limited Company in October 2012 to do medical locums.
    Only did a single day’s work in November 2012.
    I have not touched the business account.
    I want to close down the company.
    Can you please advise how to go about this?
    I want to do it myself as I do not have much money to pay an accountant.

    Thanks in advance

  34. James Green says:

    Seems a bit odd but probably perfectly legal though being “re-employed on a self employed basis” doesn’t actually make sense. You are either employed or self-employed – you can’t be both. I think you probably have misunderstood the position. Ask the receiver or manager.

  35. James Green says:

    Not sure what you are asking. Why can’t your new company simply operate with you as the sole shareholder and sole director?

  36. James Green says:

    Depending on circumstances the cash should be returned to the shareholders either as a dividend (which will be taxable on the shareholders but who will get credit for the corporation tax already paid so unless they are higher rate taxpayers they probably won’t have to pay more tax) or as a return of capital (distribution) which would attract capital gains tax. Your accountant should be able to advise which method would best suit your personal circumstances.

  37. James Green says:

    Traded means that you haven’t bought or sold anything within 3 months but paying of existing bills, taxes, interest etc are not “trading”.

  38. James Green says:

    You need to get professional advice (a) on cancelling the electricity supply and (b) your options to close down or restructure your business.

  39. James Green says:

    You will need to do a final VAT return and if the company owes tax you will need to pay it otherwise you will need HMRC permission to close the company down which they may not want to give. This doesn’t amount to “trading”.

  40. John says:

    I work for a company that announced at the end of February that it was closing due to the ill health of the director. The company has a healthy balance sheet and no debts. We were issued a letter and given a P45 and redundancy pay at the end of February. Since the 1st of March we were re-employed on a self employed basis with no holiday pay, sick pay or redundancy. The company has continued trading but according to our letter it will cease trading at the end of May….is that correct that we should have been made redundant before the company ceased trading?

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