There are several reasons why business owners take the decision to voluntarily close their company and it is recommended to discuss this decision with your business accountant first. Dissolving a company may initially be perceived to be a lengthy and complex process, however, by following certain steps and carrying out simple checks, it is a relatively straightforward task.
Your company can be closed down by ‘striking it off’ the register of companies held by Companies House. Once the company name is removed from the register, it officially ceases to exist. When applying to dissolve a company, you hold particular responsibilities to close it down correctly. The company must firstly be closed down legally. A number of questions arise at this time, such as;
- Who must be informed?
- What must be organised with regards to employees?
- Should HMRC be notified?
- What happens to the assets of the business?
- Are final accounts required?
- Are the personal profits susceptible to Capital Gains Tax?
Interested parties, who may be affected, such as creditors, members, employees, managers, trustees of employee pension funds and all directors must be notified within 7 days, by providing them with a copy of the ‘application to strike off’ form, DS01. HMRC must also be notified of the closure. This will involve de-registering the company for PAYE and National Insurance, preparing and filing the final statutory accounts and Company Tax Return, paying any outstanding tax liabilities, and following the guidelines in respect of making staff redundant and paying their final salary or wages. It is worth noting that if the company has made a loss in the final year of trading, the tax may be able to be offset against profits from previous years, otherwise known as ‘terminal loss relief’. Terminal loss relief can be claimed on the final tax return of the company.
In respect of any remaining assets of the business, these should be shared amongst the shareholders prior to the company being struck off. It is important to be aware that any assets which are left undistributed will go to the Crown. If the value of the assets is in excess of £25,000, the amount will be treated as income and income tax will have to be paid. Similarly, the value of the assets taken out of the company prior to dissolution may be subject to Capital Gains Tax. Despite this, it is possible in some cases to obtain tax relief on this through Entrepreneurs’ Relief within your personal Self-Assessment tax return. Once all owed balances have been settled, the company bank account should be closed.
Section 1003 of the Companies Act 2006 states the following conditions must subsequently be met to have your company struck off the Companies Register:
- The company has not changed names in the last 3 months
- The company has not traded or sold off any stock in the last 3 months
- The company is not threatened with liquidation
- The company has no agreements with creditors, e.g. a Company Voluntary Arrangement (CVA)
Once you are confident the company complies with the above legal provisions, the application for dissolution can be made through completion of form DS01, ‘striking off application by a company’, costing £10. This should be finalised by the majority of the active Directors of the company. The request to strike off the company will be published in the local Gazette when the application has been accepted. Subject to no objections, the company will be struck off the register and dissolved within two months. The Gazette will publish a second notice confirming the company has been struck off and no longer exists. Although the company has at this point closed, business documents such as bank statements and invoices must be kept for a further 7 years. Furthermore, if the company had employees, copies of its employers’ liability insurance policy and schedule for 40 years from the date the company was dissolved, must be kept.
Please seek appropriate professional advice before making the decision to dissolve your company.
The information in this article is believed to be factually correct at the time of writing and publication, but is not intended to constitute advice. No liability is accepted for any loss howsoever arising as a result of the contents of this article. Specific advice should be sought before entering into, or refraining from entering into any transaction.