Limited Company

Closing a Limited company in the UK. Image: AdobeStock

Closing a Limited company in the UK: What you need to know

When you are closing a limited company, you usually need the agreement of your company’s directors and shareholders to close the company.

Limited Company

Closing a Limited company in the UK. Image: AdobeStock

The way you close the limited company depends on whether or not it can pay its bills.

When to close a Limited company

If the company can pay its bills (it is ‘solvent’)

You can either:

  • apply to get the company struck off the Register of Companies
  • start a members’ voluntary liquidation

Striking off the limited company is usually the cheapest way to close it.

The company can’t pay its bills (it is ‘insolvent’)

When your company is insolvent, the interests of the people your company owes money to (its creditors) legally come before those of the directors or shareholders.

  • You must arrange the liquidation of your company.
  • Your company might be forced into compulsory liquidation if you don’t pay creditors.
  • You may be able to avoid liquidation by applying for a Company Voluntary Arrangement.

If the limited company doesn’t have a director

You must appoint a new director if your company doesn’t have one, for example, if a sole director has died. Companies House will eventually strike off a company that doesn’t have a director, but this can make it more difficult to manage any company assets.

Shareholders must agree to appoint a new director and may need to vote on it. If a sole director has died and there aren’t any shareholders the executor of the estate can appoint a new director, as long as the company’s articles allow it. The new director can close the company.

Your company still needs to pay corporation tax and file a tax return even if there’s no director.

Let the limited company become dormant

You don’t have to close your company if it’s no longer trading. You can let it become ‘dormant’ for tax as long as it’s not:

  • carrying on business activity
  • trading
  • receiving income

Your company will still be registered at Companies House. You must still send your annual accounts and confirmation statement (previously annual return) to Companies House.

You can keep a company dormant for as long as you want.

ALSO READ: Homebuyers latest: The UK Mortgage Guarantee Scheme

Back to normal?

Now that the majority of COVID-19 restrictions are being eased, or removed completely, can we assume that normality can return in place of the unremitting uncertainty of the past two years?

Whilst this may seem to be a welcome prospect, business owners badly affected by this disruption will have two issues holding them back:

  • A depleted balance sheet – reserves used to survive extended periods of shut-down or reduced trading.
  • The repayment of loans taken out to fund overheads and other fixed costs during lockdown.

Both of these issues will inhibit a sudden rush of activity unless sales are made on a cash basis.

To minimise any downside risks we recommend pausing to create a realistic business plan for at least the next twelve months. This will identify any dips in cash resources and reveal the level of profitability that can be achieved.

Exceed CA specialises in Tax and Accounting services for individuals and businesses. For more Tax and Accounting news, click here.