There are many reasons a solvent limited company needs to be brought to an end; perhaps due to retirement, illness, or simply a desire to extract the cash tied up.
Once a decision has been made to wind down and cease trading, the next step is to determine the most appropriate way of closing the company down officially. There are a number of processes which need to be explored but fundamentally, the decision will be determined, in the main, by the financial position of the company and the future ambitions of its directors and shareholders.
- An informal way of closing down a limited company is to strike it off (or dissolve it) which can be actioned relatively quickly and easily, via an application to Companies House. However, any company property or assets at the time of strike off will become ‘bono vacantia’ (i.e. ownership passes to the Crown).
- If the company has ceased trading but might be required at some point in the future, consider making it dormant. The company will remain on Companies House register (meaning that filing obligations are still required) but all outstanding tax liabilities and corporation tax filing obligations must be up to date with HMRC. Making a company dormant protects your company’s name and reputation; it can remain dormant for a number of years and resurrected.
- If there are significant company assets (typically in excess of £20,000 in total) liquidating the company could be the most cost-effective and tax-efficient solution. A solvent liquidation is achieved via Members’ Voluntary Liquidation (MVL) which must be overseen by a licensed insolvency practitioner.
- Distributions to shareholders via a MVL are treated as capital gains rather than income which, generally speaking, are taxed at 20%. Also, providing all the conditions are met by the company and the director shareholder, Business Asset Disposal Relief might reduce the capital gains tax rate to just 10%.
If one of your new year’s resolutions is to make a change and you are wondering what to do with your limited company, speak to one of us on 01223 810100 to discuss your options.