Starting your own limited company is exhilarating; you’re filled with positivity, drive, and ambition. Unfortunately, things don’t always go to plan. After some time, you might find that you no longer want to be a business owner, or maybe you simply don’t need the company anymore.
So, what are your options? There are two possible routes: closing the limited company or making it dormant. In this blog, one of the UK’s leading company formation agents, Rapid Formations, explains what these options involve.
Making a limited company dormant
If you no longer need your limited company, dormancy is one option. A dormant company still exists but is inactive due to having ‘no significant accounting transactions’ in its financial year. Effectively, it means it has stopped trading or carrying out business activity.
Significant transactions are ones which you enter into the company’s accounting records. This includes anything from bank interest payments to issuing shareholder dividends. However, it doesn’t include Companies House filing fees, late filing penalties, and money paid for shares when the limited company was incorporated.
Making your company dormant gives you the flexibility to start trading again in the future if you want to, so this is a great option if you simply want to pause your company’s activities. If you do start trading again, it will automatically lose its dormant status and become an active limited company again. Otherwise, you can simply leave it dormant indefinitely or close the company later down the line.
What you need to do
If you choose to make your active limited company dormant, first, tell HMRC that your company is dormant for Corporation Tax. For this, you’ll need your company’s name, Unique Taxpayer Reference (UTR), and the date your company stopped trading.
You’ll then need to file a Company Tax Return and pay your bill on any profits the limited company made before becoming dormant. Once you’ve done that, your company is considered dormant.
There is no need to notify Companies House about your dormant status. However, you’ll still need to file your confirmation statement and dormant annual accounts (a simplified version), the responsibility for which continues to lie with the director(s).
Dormant accounts include a balance sheet, issued share capital, and net assets. You’ll also need to provide your company name and registration number, the date on which the director(s) approved the accounts and at least one director’s signature.
Note that even though your limited company is dormant, filing deadlines and late filing penalties still apply. Penalties start at £150 and increase depending on how late your filing is.
Dissolving a limited company
If you’re positive that you no longer need the company, your other option is to dissolve it. This is also known as ‘strike-off’, meaning it will be permanently removed from the Companies House register.
Dissolving a limited company is a simple administrative procedure once you’ve obtained approval from the board of directors. Before applying, check that you qualify for dissolution by ensuring that the company:
- Hasn’t changed its name in the last three months
- Hasn’t traded, carried out any other business activity, or sold off any assets in the last three months
- Isn’t threatened with liquidation
- Doesn’t have any ongoing creditor agreements
Once you’re happy that you meet the above criteria, you can apply for voluntary strike-off. If you change your mind later and, for whatever reason, wish to restore your limited company, it’s possible to bring it back to life. However, it’s often a lengthy, complicated, and expensive process, so you should be certain that you want to dissolve your company before committing.
What you need to do
Given that you meet the criteria outlined above, here are the steps you need to follow to dissolve your limited company.
- Notify key stakeholders
Next, let any key stakeholders know that you’re applying for voluntary strike-off. Stakeholders can include shareholders, clients, employees, and suppliers.
- Settle your business assets
Any outstanding business assets, like land, property, equipment, stock, or shares, should be sold or assigned to the shareholders. If any assets remain, they will automatically pass on to the Crown.
- Pay your staff
If you employ people, you’ll need to provide lawful redundancy packages and pay their final wages. You also need to tell HMRC that you’ve stopped being an employer.
- Settle your debt
To dissolve a limited company, it must be solvent, meaning it must be able to pay off its debt. At this stage, settle any outstanding bills. Otherwise, creditors could object to your strike-off application.
- Deliver final accounts and tax return
File and pay your final Company Tax and VAT (if applicable) returns to HMRC, and deliver your final accounts to HMRC and Companies House.
- Terminate existing contracts
Any ongoing contracts must end before you can close your limited company. Remember to check the terms and conditions of each agreement before doing this, ensuring you don’t breach any termination clauses.
- Close company bank accounts
Ensure that all company bank accounts are emptied and closed. If any funds remain in an account, they will be inaccessible once the company has closed.
- Apply for dissolution
Finally, file form DS01 to apply for strike-off. You can do this online, which costs £33, or by post, which costs £44. For ease, you can also use a company formation agent like Rapid Formations, who can take care of this on your behalf.
Following your application to close the company, you must legally provide your key stakeholders with a copy within seven days. Once our application is processed, Companies House will confirm that your limited company is closed, update the public record, and publish a statutory public notice.
Summary
As exciting as they are to begin with, business ventures don’t always work out the way we hoped. If you find that you no longer need your limited company, you can either make it dormant or close it down. We hope this article has helped you navigate your options.
If you need assistance with dissolving your limited company or filing dormant accounts, Rapid Formations, a leading company formation agent in the UK, can help. These services start at just £49.99, saving you considerable accountancy fees and precious admin time. Visit the Rapid Formations website for more details.
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