There’s a lot of advice out there on how to set up a company. However, information on how to close a company is a little harder to find. Companies are closed down in the UK every day and it’s important to do it correctly. Just as you have legal responsibilities in running a company, you also have a legal responsibility to close it down correctly.
The correct term for closing a company is Striking Off and your company must meet certain criteria:
- It hasn’t traded in 3 months and hasn’t had a name change during that time
- It’s not facing liquidation
- It has no agreements with creditors, for instance Compulsory Voluntary Agreement (CVA)
Before you apply for strike off, you must inform anyone who may be affected. This includes your fellow directors and any creditors.
You must inform HMRC’s Corporation Tax office that the company has ceased trading (and the date it ceased). You will be expected to provide final accounts and pay all taxes due.
If you have any surplus funds in the company, these can be distributed as dividends or capital distribution. It’s always advisable to seek the advice of your accountant to make sure you’ve extracted any funds correctly.
A capital distribution is often more tax efficient but you must go through a process called a Members Voluntary Liquidation if you wish to distribute more than £25,000 in this way.
In some circumstances, it may be more advantageous to extract some of the profits by salary or some other means, before starting the process of dissolving the company.
Be sure to close your business bank accounts before you apply to close your company. Once the company has been closed, your accounts will be frozen and you will no longer be able to withdraw any funds. Some banks freeze the accounts as soon as the application has been registered by Companies House.
Creditors & Taxes
Any creditors must be informed before you make the application to strike your company off and you should send them a copy of the strike off form within seven days of filing. Please note that creditors can block the strike-off process by lodging an objection with Companies House.
You must also deal with any taxes, such as VAT and PAYE. This means cancelling your VAT registration and asking HMRC to close any PAYE, CIS or other schemes. Failure to do this could result in HMRC issuing penalties for missing VAT returns and payroll submissions. HMRC will also block the strike off if they believe that there could be taxes due – this is by far the most common reason for strike-offs to be discontinued.
Completing the form
Your application to strike off the company must be signed by a majority of the directors, and can be done using form DS01, which is posted to Companies House. There is also a small charge, currently £8.
There is also an online process. However, it is emailed by Companies House to all the directors asking for consent. This is time-consuming unless everyone responds promptly.
The Next Steps
Once you’ve submitted your application, the whole process should take approximately two-three months, if there are no objections.
Details will be available to the public by being published in the gazette and on the Companies House website, interested parties have an opportunity to object.
Finally, confirmation will be sent by post to the company’s registered office.
When the company is dissolved, it no longer exists and any assets become the property of the Crown. It cannot be sued or pursued for debts or anything else.
It is possible to restore a company but this is a time-consuming and expensive process. This happens most frequently when the directors inadvertently forget to close the bank account and there are significant funds that have become out of reach.
A creditor may also apply to have the company restored in order to recover a debt, although this is quite rare.
A note about Bounce Back Loans
Some people believe closing down their company will enable them to avoid repaying their Bounce Back Loans.
We strongly advise against this approach as it is hard to imagine that the bank would not object to the strike off and it might even appoint a liquidator.
If it turns out that the Bounce Back Loan was in turn loaned to the director(s), or anyone else, the liquidator will pursue the debtor to try and recover the funds in order to repay the loan.