Closing your company and other options
If you are not currently using your company, you may be considering what to do with it and whether you should close it down. The answer to this question is not always straightforward and often it will depend on your personal circumstances both now and into the future.
If you have ceased to trade, you have various options open to you. The main options open are:
- Putting the company ‘on hold’
- Making the company dormant
- Become an investment company
- Striking off the company
What is the best option for me?
Unfortunately the answer to this is not straightforward. What is the best option for yourself is very much driven by your personal circumstances. Because this is a complicated area and the tax implications are potentially significant, it is always advisable to seek professional advice when making such a decision.
At Sherwin Currid we have expertise in this area and regularly help clients to evaluate which option is best for them. If you would like our help then please do not hesitate to get in touch.
Putting your company on hold
If the cessation of trade is temporary, the company can be left open. You should ensure that any VAT, PAYE and corporation tax payments are still paid by their relevant due dates. All regulatory filings should still be completed, including VAT and payroll submissions, if registered, even if the submissions are nil. By law, however, the company does not qualify as "dormant" at this time. The phrase "dormant company" is often misused - under the Companies Act, it only applies where the company has no accounting transactions in a complete financial year.
Dormant company
To be entitled to file dormant accounts and no corporation tax return, you must complete a full 12-month accounting period with no significant accounting transactions. In practice, this means the bank account must be closed before the financial year for which dormancy starts, or as soon as final liabilities have been settled. Any bank interest would negate your entitlement to dormancy.
Investment company
If you have significant reserves, you may wish to consider making investments via the limited company. If you withdraw large reserves out of your company, you will crystallise a sizeable personal tax liability. Instead, you can earn a return on the funds and extract the profits later when it is more tax efficient for you personally. It is possible, for example, to invest in property by forming a Special Purpose Vehicle (a limited company for a property) and make an intercompany loan from your original company for the deposit with no tax consequence (besides the stamp duty).
You do not need to do anything specific to become an investment company; instead, it automatically happens if the company has more than 20% in investments. Please note that if the company becomes an investment company, Business Asset Disposal Relief will be denied (see below).
Company strike off
If you do not intend to use the company in future, there are two realistic options to close it: a "winding up" or "dissolution" of the company under the Companies Act s1000 or a Member's Voluntary Liquidation under the Insolvency Act 1986.
Once a company is struck off, all remaining assets pass to the Crown. Any outstanding repayments, such as corporation tax refunds not yet processed by HMRC, will not be repaid to you.
Winding up or dissolution
This involves distributing surplus company funds until the amount available to distribute in the winding up is £25k or less. The final distribution can potentially be treated as a capital sum.
Member's Voluntary Liquidation
This is a more expensive route but allows for Capital Gains treatment of the reserves in the company. A members' voluntary liquidation (MVL) requires a licensed insolvency practitioner to act as a liquidator who will realise the assets, pay off all liabilities, and return the surplus to the shareholders.
Sherwin Currid are experienced accountants and will help you decide how best to decide on the future of your limited company.