There may come a time when you decide that you no longer need your limited company. Here, a leading accountant explains the procedures you must follow when shutting down your business.
What are cessation accounts?
Daniel Mepham, MD of SG Accounting, told us; “The main reasons I see for our clients wanting to shut down their company is because they are moving into permanent employment, retiring or relocating abroad.
“Whatever the reason, there are procedures that you must follow when shutting down your business, including submitting accounts to HMRC. Slipping up here can prove very costly!”
Cessation accounts explained
Cessation accounts are the final set of accounts that you or your accountant will prepare. They cover the period from when you started trading, or from when your last set of accounts were prepared to the date of cessation.
The cessation date is not when you decide to shut down the business. Instead it is based on the date the trade ceased which for contractors is typically the date your last invoice was paid or when your last expense was incurred.
It may be that the company will continue to collect money from debtors or pay out money to creditors after it has stopped trading. The cessation accounts make allowances for this, plus any fixed assets the company has.
Why are cessation accounts needed?
Cessation accounts have two main uses; firstly, they are used to calculate the final amounts of money which is owed by your company – for contractors it’s mainly the final Corporation Tax, PAYE and VAT owed to HMRC. Secondly, cessation accounts help to determine how much money you can withdraw from the business.
Before the cessation accounts can be finalised all creditors must be identified. If you been organised and have been paying your PAYE and VAT liabilities on time, then the only thing left to pay will be the Corporation Tax that is due on the profits you made from your last trading period.
What to do with that remaining profit is definitely something to talk with your accountant about. There are a number of options (typically salary, dividends, capital distribution) but also some traps to avoid. For example, not carrying on the same trade for 2 years post cessation if a capital distribution is made.
What do you with cessation accounts?
Once the accounts have been finalised, you will need to provide a copy to HMRC. These will be used to prepare your final tax calculation and your CT600 Corporation Tax return.
Until you ask for your limited company to be voluntarily struck off from the official register, you must provide statutory accounts and other returns each year to Companies House.
If you fail to comply with this, as a director of the limited company, you may face penalties and even prosecution.
Steps to take following cessation
It’s likely that some money may still be held in the company’s bank account. Tempting as it is to withdraw it all in one go, we strongly advise you not to do so. Instead, you should ensure there is enough in there to settle the final liabilities in the company and then get advice from your accountant on how best to deal with what is left.
Getting it right can sometimes mean the difference between 0% tax and 45%.
Next, you should be thinking about closing the company’s bank account. This should only be done once you’re satisfied that all debtors have been refunded and that all creditors have paid you what is owed.
This is important, as once the company has been dissolved you won’t be able to open another bank account in the company’s name to receive payments.
Plus, if you dissolve the company with money remaining in the account, the account and the money held within it will be classed as ‘Bona Vacantia’, or un-owned goods.
In the end, ownership of the money passes onto the Crown and comes under the control of the Treasury Secretary. Therefore, to prevent your money from going to the treasury, you should withdraw the final funds before submitting form DS01 (striking off) to Companies House.