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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.

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

  1. 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.

  2. 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,

  3. 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.

  4. 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.

  5. 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?

  6. 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.

  7. 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?

  8. real hcg says:

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

    Bookmarked.

  9. 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.

  10. 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.

  11. James Green says:

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

  12. 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

  13. 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!

  14. 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!

  15. 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.

  16. James Green says:

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

  17. 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?

  18. 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).

  19. 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

  20. 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.

  21. 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?

  22. 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.

  23. 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”.

  24. 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.

  25. 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”.

  26. 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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