If you are considering shutting down your company, this blog will provide you with guidance on what you may have to do.
Create an exit strategy
Having an exit strategy in place can ensure that your transition is as smooth as possible.
If your company is solvent, there are two ways to cease running your company:
- through completing and filing a striking off form with Companies House: the notice of closure will be published on the Gazette and any profits will be distributed amongst shareholders
- by liquidating your company by undergoing Members’ Voluntary Liquidation: this will shut the company down and return any capital to your shareholders
Where your company is insolvent, the Creditors’ Voluntary Liquidation must be used to shut down your business.
For more information, read Closing a limited company.
Inform your employees
To avoid confusion and any future legal disputes, you should notify your employees of your decision as soon as possible.
Review their Employment contracts to make sure you’re abiding by its terms including any notice period specified.
It’s also important to comply with requirements under employment law. Make sure you follow the procedures for redundancy and make statutory redundancy payments to any staff that have been working with you for at least 2 years. Some of your employees may also be entitled to other kinds of payments eg holiday pay.
The redundancy process differs depending on the size of your business. If you’re a small business, read How to make someone redundant in a small business.
If you operate a PAYE system, you must also notify HMRC in order to close the scheme.
Notify any business partners and your customers
If you’ve contracted to partner with another business via, for example, a Collaboration agreement or a Services agreement, you should let them know that your business is closing and pay them any outstanding amounts.
It’s also advisable to notify your customers of your intention in order to minimise chances of disappointment and any inconvenience caused. You should also address any outstanding tasks, if any.
You can inform your customers in various ways, for example:
- issuing a press release
- posting on social media
- emailing your customers
Collect and pay any outstanding debts
Before closing down, you should collect any money your clients owe. You should also pay off any outstanding debts. This doesn’t only refer to loans but also any sums you owe your suppliers, sellers or service providers (eg accountants and lawyers).
In some instances, you may need to sell your business assets in order to pay these outstanding amounts. This includes excess stock, tools and equipment and any intellectual property.
Some of these costs are considered as allowable business expenses and can be used to lower your corporation tax liability.
Inform HMRC and pay any taxes due
You must inform HMRC of your intention to cease trading through your business.
Corporation tax
File your last Company tax return with HMRC and pay your final Corporation tax bill.
When filling in your annual return, any gains made by the company when selling its assets should be included in the calculations.
Capital gains tax (CGT)
If you’ve made any personal gains or losses when closing down the company, they must be disclosed in your self-assessment tax return and you may be liable for CGT.
VAT
Where you’re VAT-registered business, you must inform the HMRC using the VAT 7 form. This will de-register you from the VAT regime.
Once it’s been approved, you will receive a final VAT return. You must complete the form, accounting for any leftover stock and business assets on the day your registration is cancelled.
Final steps
- Terminate your lease if you have an office space
- Distribute any leftover cash or assets amongst shareholders after making all the necessary payments
- Close your company’s bank account
- How to declare bankruptcy - 26/08/2020
- Closing down a limited company: a to-do list - 19/08/2020
- Breaking down the Corporate Insolvency and Governance Act - 10/07/2020
