Here we outline a quick guide on closing your business, however it can be complex so you should consider seeking advice from an accountant or bookkeeper.
If you’re a sole trader or partnership then you will need inform HMRC that you’re no longer self-employed. You can do this over the phone and you will need your National Insurance number and your Unique Tax Reference (UTR) number.
You will still need to complete a self assessment tax return at the end of the last year in which you had self-employed income. It doesn’t matter if your self-employed income was received in relation to just part of a year as HMRC still need to know about it and ensure you pay appropriate tax.
Sole trader: insolvency
As a sole trader you and the business are the same legal entity. If the business is insolvent then you are personally liable for any business debts. This means that it becomes a personal insolvency issue whereby you are wholly responsible for the debts of your business. There are two options available to you: Individual Voluntary Agreement (IVA) or bankruptcy.
An Individual Voluntary Arrangement (IVA) is a legally binding procedure to negotiate and agree repayments with your creditors. Once agreement is reached it usually lasts 5 years and dyring this period your creditors cannot take any legal action to recover the debts from you. If you fail to make the agreed repayments then a creditor or your IVA supervisor may petition for your bankruptcy.
Sole trader: bankruptcy
Declaring bankruptcy is usually a last resort and will mean that personal and business assets are lost. You can petition for your own bankruptcy through the courts and hand over control of your assets to an appointed supervisor. They then value your assets which may be sold in order to repay creditors.
Limited company: strike off
You’ll need to complete a final corporation tax return for your accounts up to the closure of the business. You can do this as part of your usual accounting period end date, or you could choose to submit it early. Bear in mind that there are tax implications in relation to your assets and any losses within your final accounts, so you may wish to discuss these with your accountant.
Once the corporation tax has been paid, and you are confident that there will be no further financial transactions then you should close your bank account. You can then close the company at Companies House via their form which requests the company to be struck off. Once the company has been struck off you won’t be able to access the business bank account.
Once they receive the completed form, Companies House will publish a notice the Gazette (official public record) to provide notice to any parties that might object to the closure. After 3 months, assuming no objections are received, the company closure will be confirmed in the Gazette.
If you have more than £25k profit to distribute once the business closes then you need to be aware that the whole amount will be taxed as income. A Members Voluntary Liquidation (MVL) might be a more tax efficient option to consider.
Limited company: Members’ Voluntary Liquidation (MVL)
This option enables your profits to be distributed as capital, meaning that it will be subject to capital gains tax rather than income tax. If you choose this route, you will need to engage a licenced solvency practitioner to do the liquidation. There is obviously a cost for the work, which you will need to balance against the benefit of any tax efficiency. It is definitely worth getting some financial illustrations from your accountant so that you can decide. Also, most accountants will be able to recommend suitable licenced solvency practitioners that they work with.
Limited Company: going dormant
You could choose to let your limited company go dormant. In this scenario the company will cease trading, and you will keep the company name. However, you will still have to complete an annual confirmation statement every year and submit dormant accounts to Companies House. If you don’t submit the annual confirmation statement then Companies House will automatically start the strike off process.
Limited Company: insolvency
If your company can’t pay its bills, it is insolvent. In this situation, the interests of the people your company owes money to (creditors) legally come before the interests of your company directors and shareholders.
A director can propose liquidation if the company cannot pay its debts and if 75% (by value of shares) of shareholders agree. You will need to appoint an insolvency practitioner to arrange the liquidation of your company.
You might be able to avoid liquidation by applying for a Company Voluntary Agreement (CVA). If they agree, the CVA enables you to pay creditors over a fixed period and your company can continue trading.