The harsh reality is that very few businesses last forever and there may come a time when you may need to consider dissolving your limited company. There are a whole host of reasons why you may be considering this option; your business may have been successful but has now served its purpose, or maybe it never got off the ground where it has been sitting dormant ever since.
Legal Requirements for Dissolving your Company
If you are considering dissolving your company, just note there are requirements and obligations you are expected to fulfill. The company must not have traded in the last 3 months nor changed its name and you are expected to have informed HMRC – they will expect final accounts to close of trade and for any taxes to have been settled.
You will also need to account for any surplus funds that you intend to extract from the company by way of salary, dividend, or capital distribution. If you are not sure about this then you may have to seek the services of an accountant to help you through this process and ensure that you have extracted the funds correctly and in the most tax efficient way.
If you have any creditors then these must be told prior to the application and a copy of the strike-off form must be sent to them within 7 days of it being filed. However, if you have had a dormant company from the date of registration — in which case HMRC will class it as “inactive” — then it will not be susceptible to tax liabilities like VAT, PAYE, or corporation tax.
Note that as long as you can evidentially and legally declare that your company has never traded and indulged in capital gains from trading products or selling business assets, you will be exempt from paying any sort of business tax.
In addition, it is recommended to contact HMRC for confirmation of your company status and understand whether closing your company has resulted in/will result in any untoward implications. In addition, you may continue to receive correspondence from HMRC at your registered office address if you do not finalize and confirm your company status.
Steps to Close a Limited Company That Never Traded in the UK
Closing a limited company that has never traded is quite a fairly simple process as long as the majority of the company’s directors agree with the closure.
Know Who to Inform
A lot of limited companies with long and complex trading histories that have creditors and perhaps numerous shareholders and directors, have to inform a long list of people who have been associated with the company. However, as a Company that never traded, you simply need to inform:
- HMRC (for corporation tax, payroll, and VAT purposes)
- The company’s business insurer
- The company’s banker
- Accountants and other professional advisers.
Additionally, if there are a co-director and additional shareholders, they are expected to be informed in writing and be sent a copy of the application for striking off, Form DS01. Co-directors will also be required to sign the striking off request.
Close all Accounts, Payroll, VAT Registration, and Tax Return
Company accounts are all expected to be prepared for the period from the last annual accounts to the final date of trading. These accounts are also expected to be submitted to HMRC with a Company Tax Return for the period and a request to close down the corporation tax scheme for the company, explaining that the contractor’s company will be dissolved.
The Inspector of Taxes for the company’s payroll should be informed that the company has ceased trading and HMRC will issue a final P35 Employer’s Annual Return, which the business owner will need to complete and return.
Have it in mind that any final balance of PAYE tax and National Insurance Contributions should be paid. You would also have to inform HMRC that the company has quit trading and that it should be deregistered for VAT. HMRC will send a questionnaire, which for most business owners should be fairly straightforward.
If the company held stocks or items like furniture and equipment, then the business owner might need assistance from their accountant to complete a final VAT return. Corporation tax, payroll, and VAT are all different departments within HMRC, so you are expected to contact all three and not assume that the change in the company’s trading status will be passed on.
Make all Final Payments and Close the Bank Account
Also, note that any payments due to HMRC and other creditors should be made from the company bank account. None of these payments must be associated with trading; otherwise, the company cannot be struck-off. If there are any remaining assets in the business, such as cash in the bank account and tangible assets, such as computers or furniture, these can be paid to the shareholders as a final dividend, likely in practice to be the contractor.
Additionally, if there are significant reserved funds in the company (more than £35,000) then a Member’s Voluntary Liquidation (MVL) is a tax efficient route of extracting the cash with only 10 percent tax paid. There could be Capital Gains Tax (CGT) liabilities coming from the final payments to the shareholders/contractor; so the business owner should take note from their accountant about the most tax efficient way of handling the final payments to shareholders.
Note that only when all the payments have been made should the bank account be closed. Note that any cash or assets left in the business after the company’s date of dissolution automatically go to The Crown – basically the accounts get frozen and the government gets it!
Applying to Companies House
After the final accounts and tax return have been sent to HMRC, the final dividend paid and the bank account closed, plus other loose ends such as reassigning the ownership of domain names, then the contractor should submit Form DS01 to the Registrar at Companies House.
If there are no complications, which will be the case for most business owners who are sole directors and shareholders of their own limited company, the Registrar at Companies House will advertise the dissolution of the company in the London Gazette.
Note that this is more or less a formality, as there should be no creditors, shareholders, or directors to object. Therefore, within nine months the company will be struck off and cease to exist. Then, for many contractors, this will be the end of a major, and hopefully profitable and enjoyable, chapter in their lives.
The process of closing a limited company that has never traded is not too overwhelming as long as you follow the correct procedures. However, remember that when you close your company, any business-owned assets must be transferred from the company’s ownership and shared amongst shareholders. Failing to do so will result in the Crown owning the said assets at the date of dissolution.
Also, remember to apply to Companies House for company closure and ensure you have not traded within the past 3 months; not changed your company name within the past 3 months; are free of any legal proceedings, and not made a disposal for the value of property rights. Once you check all the boxes, the process to close your company will be swift.