How Do You Close an Ltd Company With No Debt?
For a number of reasons, you or your shareholders may choose to close down or sell your firm.
When selling or terminating your firm, there are numerous things to consider, such as resolving tax disputes with Revenue, your obligations to your staff and vendors, and notifying the Companies Registration Office.
An overview of the information on how to close a business debt-free is provided in this article.
How Does A Limited Company Close Down?
The manner in which a business is shut down mostly relies on its financial status and whether it is actively trading or not.
Whether it is solvent or insolvent, there are four basic methods by which it might be closed by the directors.
- A member’s voluntary liquidation can be used to close the company if it has no debts but more than £25k in assets.
- A dissolution if the company has no significant debts or assets and hasn’t conducted business for three months.
- Under the director’s control, a company that is bankrupt and unable to pay its debts may seek a creditors’ voluntary liquidation.
- If the company is bankrupt and there are no funds or an unwillingness to bring proceedings to a close, the court will order that it be wound up.
How to Close A Company With No Debts (Solvent)
1. Members’ Voluntary Liquidation (MVL)
This is a formal procedure used to shut down a solvent business. The corporation engages qualified insolvency professionals to help it convert assets into cash. The proceeds are then dispersed evenly to the stockholders of the firm. If there is £25k or more in cash, directors could be entitled to claim business asset relief.
Instead of being taxed as dividends, members who receive this money are taxed as capital gains. The directors must state that the firm can pay for everything, including the expense of liquidation, in full before they may request relief.
Of course, you will have to pay the insolvency practitioner’s fee, but overall, the cost should be considerably lower.
From beginning to end, an MVL takes around a year. Typically, shareholders receive around 75% of their money in the first three months and the remaining 20% in the next two.
What Tax Do I Pay in an MVL?
The funds distributed from an MVL are typically only subject to CGT, which is just 10% if you are eligible for entrepreneurs’ relief.
However, under certain circumstances, the MVL funds could be liable to income tax:
- Your firm has no more than five shareholders.
- Within two years, you engage in a related profession or hobby.
- Your MVL looks to be mostly focused on tax evasion.
Need accounting and taxation service? Reach out to us!
The Pros and Cons of an MVL
Pros: An MVL is often far more tax-efficient than a voluntary strike-off if you have a large amount of retained earnings.
Cons: You must hire an insolvency professional, and the MVL procedure may take longer than a strike-off.
2. Dissolution, Also Known as a Voluntary Striking Off
People sometimes forget that having a business means having legal obligations and having information that must be reported annually, even if the firm is dormant or not trading after it has been registered with Companies House.
Some people create a limited company with the goal of starting a business later on or only to safeguard their company name. Things do not always go according to plan, even when there are good intentions to run the firm, and occasionally you could have a registered company that you no longer want or want to utilise.
Others may face a time when their business is no longer profitable or when there is no one to take over or pass the business on to when they decide to retire. The procedure will go easier if you have a strategy to aid in wrapping things up.
How To Remove Your Company From the Companies House Register
This procedure is known legally as dissolution or striking off. By doing this, the business will no longer exist, and you won’t need to give us any further documents like your confirmation statement and yearly reports.
The corporation must fulfil a number of requirements before a voluntary dissolution may start. You may request that your corporation be struck off only if it:
- Hasn’t traded or rebranded in the last three months
- Is not in danger of being dissolved
- Does not have any creditor arrangements in place, such as a Company Voluntary Arrangement (CVA)
You will need to voluntarily liquidate your business in the event that it does not fulfil these requirements.
Before You Apply
You have obligations to appropriately close down your business before filing for a strike-off.
All parties involved, including HM Revenue and Customs, must be informed of your plans (HMRC). Business assets must be sold, accounts must be emptied, and employees (if any) must be treated in accordance with company policies. If you fail to accomplish this, any assets of a dissolved firm will pass to the Crown because there is no longer a valid owner.
How to Apply
Utilising your Companies House account and authorisation code, you may submit an online application to have your business struck off. Although filing Form DS01 on paper typically takes longer, it is an option.
The application cannot be submitted for corporations with more than one director until at least two-thirds of the directors have signed it. Everyone who could be impacted must get a copy of the application within 7 days. This applies to non-signed directors, workers, creditors, and members (shareholders).
The procedure is really easy to follow if your organisation has never traded. You must notify HMRC that the business has never traded and will soon be removed from the Companies House registry after you have applied for strike off.
Your last statutory accounts and a Company Tax Return must be sent to HMRC if your company has traded but satisfies the requirements. You must also note that these are the company’s final trading accounts and that they will shortly be dissolved.
When they get your application, they’ll check to make sure everything was done correctly before publishing it in the Gazette.
After the two months specified in the notification have elapsed, the firm will be removed from the register if there are no objections to the strike-off. The firm will no longer be considered to be in existence (it will have “dissolved”) after the publication of a second notice in the Gazette. Companies House would often accept the dissolution and permit the firm to liquidate without having to pay the fine if you owe them money for late filing penalties.
Withdrawing Your Application for Strike Off
If your business is no longer eligible to be struck off, such as if it is trading or becomes bankrupt, you must withdraw your application. If you change your mind and decide to stay with the firm, you can also withdraw your application.
You should transmit a physical copy of the DS02 form or utilise the Companies House online tool to accomplish this right away.
After Your Company Is Dissolved
Information for dissolved firms is retained for 20 years even though the company will no longer exist. You can still ask Companies House or the National Archives for this dissipated information. It’s important to keep in mind that another person might utilise the company name with a new, special company number.
It is always advisable to consult a professional before making any decisions during a legal proceeding.
How Much Tax Do I Pay in a Voluntary Strike-off?
The amount of tax you pay when withdrawing the final profits from your business will vary depending on a variety of variables.
All owners must pay capital gains tax (CGT) on their last withdrawals if they total less than £25,000. CGT is 20% for higher rate taxpayers and 10% for basic rate taxpayers; however, if you are eligible for the entrepreneurs’ relief, it will only be 10%.
Profits are liable to income tax if their sum exceeds £25,000. The amount of tax due depends on the shareholders’ individual tax rates and whether profits are distributed as dividends or salaries.
The Pros and Cons of a Voluntary Strike-off
Pros: An informal or voluntary strike-off is a straightforward procedure that doesn’t call for any professional assistance. It can be the best choice if your retained profits fall below the £25,000 buffer.
Cons: From a tax viewpoint, a member’s voluntary liquidation (MVL) may be a preferable alternative if your company has a significant amount of retained earnings (above £25,000, for example).
One More Option
Making Your Limited Company Dormant
In a nutshell, this entails pausing operations at your business. If you anticipate conducting future business through your firm, it is possible.
You still need to file some tax returns using this method, but they will be “nil returns” or filled out with lots of zeros!
You can continue to operate as a single proprietor outside of the business while it is suspended until you are ready to rejoin your limited company.
Think about it, evaluate your options, and choose the best one.
Read also;
Benefits of a Limited Company
