As a limited company contractor, you can choose to voluntarily shut down your company and remove it from the Companies House register. This means the company will cease to exist and you won’t face any more administrative duties or running costs for the business.
To be able to voluntarily close down your limited company, you should not have issued any new invoices or changed the company name within the previous three months. You can pay off creditors within this period but should not engage in any other business activity apart from taking steps to strike off the company.
Before going ahead, it’s worth asking yourself if you are likely to need the company again. For instance, if you’re planning on taking a break from contracting, making your existing company dormant may be less hassle and also a cheaper option.
Maintaining a dormant company costs around £100 a year. That said if you’re unlikely to need your company for three years or more, closing it down would be more cost-effective. It’s also important to note the voluntary striking off route is not an option if your business is in financial difficulty as this involves a different process.
Who you need to inform
If you are the sole director and shareholder of the limited company and don’t have any creditors or employees (as is often the case), there are a relatively short list of people you have to contact. These are:
- HMRC, for payroll, Corporation Tax and VAT
- Your company’s bankers
- Your company’s accountants, business insurer, and any other professional advisers
- Companies House
If you have a co-director and/or any additional shareholders, you must inform them in writing of your intention to voluntarily shut down the company and send them a copy of the relevant application form to sign. This is Form DS01 and is available here.
Company accounts, tax return, payroll and VAT
You’ll have to prepare your company accounts to include the period from your last annual accounts to your final date of trading, together with your company tax return, and submit these to HMRC. This should also explain that you are dissolving the company and wish to terminate the corporation tax scheme for the registered company.
HMRC will issue a final P35 (employer’s annual return) form, which you should complete and return. Any outstanding PAYE liabilities (income tax and NICs) will have to be paid in full.
You’ll also have to tell HMRC that your company has ceased trading so it can be de-registered for VAT. They will send you a questionnaire to complete.
For most businesses, this will be quite straightforward but if your company holds stocks and assets such as computers, equipment, and office furniture, you may need help from your accountant to complete a VAT return.
Closing your bank account, final payments
Before closing your company bank account, you should make any final payments due to creditors and HMRC. Any remaining cash in the company account and business assets, such as those mentioned above, can be paid to shareholders in the form of a final dividend.
In practice, if you are a sole trader or contractor, this will be to yourself. Should the business have more than £35,000 in the company account, a more tax-efficient option of closing the business is via a Member’s Voluntary Liquidation.
It’s definitely worth getting advice from your account about this, as well as guidance on any capital gains tax that arises from the payment you make to shareholders.
Make sure you deal with any cash or assets belonging to the business and make all final payments before closing the company’s bank account. You may be surprised to learn that any cash or assets left after the company is dissolved automatically goes to HMRC so, unless you’re feeling particularly generous, double-check you’ve accounted for everything!
Once you’ve submitted your tax return, completed the final accounts, paid any final dividends, closed the company bank account and tied up any other loose ends, you’re ready to complete Form DS01 and send it to Companies House.
If there are no complications, the registrar will post a notice of the dissolution of the company in the London Gazette. This is a formality and providing there are no directors, shareholders or creditors to object, the company will be struck off.
This last step should be completed within nine months after which your limited company will cease to exist.
For more information on dissolving a limited company or being struck off the Companies register, read this guide.