How-to-close-down-my-contractor-business

Find out how to close your limited company in the most tax-efficient way

If you seek a new challenge or find no further need for your contractor business, various methods allow you to close it down. Fortunately, this brings an end to the expenses and administrative responsibilities tied to operating a limited company, enabling you to start anew. Let’s explore the different ways of closing a contractor business and the situations in which they apply.

 

First things first, are you sure?

Closing your contractor business only to initiate a new one a few years later is something you’d likely want to avoid. If you anticipate a potential need for the contractor business in the future, considering dormancy might be a more prudent option. Maintaining a dormant company typically incurs an annual cost of around £100. While there are expenses involved, it could be a more cost-effective and less time-consuming approach compared to shutting down the company and later re-incorporating it.

 

How do I make my contractor business dormant?

Turning your contractor business dormant is a simple process. Here’s what you need to do:

  • Inform all clients and agents that you’re no longer trading.
  • Settle any outstanding invoices.
  • Clear any unpaid bills.
  • Notify HMRC that your company is now dormant for Corporation Tax.
  • Submit a final company tax return to HMRC, settling any remaining liabilities.
  • Prepare your final accounts and submit them to Companies House.
  • Close your company bank accounts.

 

To sustain the dormant status, you must also annually submit a confirmation statement to Companies House and provide abbreviated accounts for each year that your company remains dormant.

 

How can I close my contractor business?

If you’ve decided to close your contractor business, the appropriate approach depends on your circumstances. Here are your options:

I. Voluntary Dissolution (Strike-off):

The voluntary dissolution process, also known as strike-off, is the simplest and most cost-effective way to close your solvent contractor business. You can use this method if the total value of assets and funds to be distributed is less than £25,000. Distributions will be treated as Capital Gains, and Asset Disposal Relief may be available.

To start the voluntary dissolution process, known as strike-off, complete the DS01 form and send it to Companies House with a payment of £10. If there are multiple directors, ensure a majority sign the form. Following submission, Companies House will publish an official notice of your strike-off in the Gazette, providing a three-month window for any third parties to object to the closure. If no objections arise, your company will be removed from the register after this period.

 

Importantly, any funds or assets remaining when the company is struck off will become the property of the Crown, including future payments such as HMRC rebates. Therefore, realising assets or transferring their ownership to shareholders before completing the DS01 form is advisable.

Dissolving your company is something you can do yourself. You need to:

  • Inform relevant parties, such as HMRC, business creditors, banks, and insurers.
  • Settle all outstanding payments, including tax liabilities.
  • Sell, distribute assets, or transfer their ownership.
  • File your final accounts and company tax return with HMRC.
  • De-register for VAT and close the PAYE scheme.
  • Close the company bank account.

 

Seeking professional advice before striking off your business is advisable, as the company may be investigated by the Insolvency Service if it has not paid all its creditors. HMRC can also launch an investigation if it believes there are issues with the company’s historic tax affairs.

II. Members’ Voluntary Liquidation (MVL)

If your contractor business is financially sound with over £25,000 in retained profits and assets, opting for a Members’ Voluntary Liquidation (MVL) offers the most tax-efficient closure. In an MVL, appointing an insolvency practitioner is essential to act as the liquidator and oversee the process. While this incurs a fee, it enables the unlocking of your company’s value in a tax-efficient manner, potentially reducing your tax liability to just 10% if eligible for Business Asset Disposal Relief.

 

To initiate the Members’ Voluntary Liquidation (MVL) process, follow these steps:

  • Declaration of Solvency: Begin by making a declaration of solvency, affirming that your contractor’s business is financially sound.
  • Company Meeting: Within five weeks, hold a company meeting to pass a resolution for voluntary winding up.
  • Insolvency Practitioner Appointment: Appoint an insolvency practitioner to serve as the liquidator. They will take charge of the company during the MVL process.
  • Liquidator Responsibilities: Once appointed, the liquidator will manage the company, settling any outstanding creditor claims, realising assets, repaying creditors, and distributing the remaining funds to the shareholders.

 

An MVL is suitable only if your company can settle all its debts, including interest, within 12 months. If faced with a creditor claim it cannot pay, the process may shift to a Creditors Voluntary Liquidation (CVL), carrying potential serious consequences for you as a director. A careful financial assessment is crucial before proceeding with an MVL.

III. Creditors’ Voluntary Liquidation (CVL)

If your contracting business is unable to settle its debts and is insolvent, options like strike-off and solvent liquidation are not applicable. In such a situation, your recourse is to shut it down using a Creditor’s Voluntary Liquidation.

You must engage an insolvency practitioner to serve as the liquidator. They will oversee the business, liquidate its assets, and distribute the proceeds to creditors. Subsequently, the business will be closed, and any outstanding debts will be forgiven.

As a director, you may be eligible to seek director redundancy pay to assist in covering the expenses associated with this procedure.

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Want to close your contractor business?

Regardless of whether your contracting business is financially stable or facing insolvency, whether it possesses assets or is without them, we can offer expert advice to facilitate the closure of your company in the most straightforward and tax-efficient manner. Please contact our team of insolvency practitioners for further information. We provide complimentary, obligation-free consultations and operate through a nationwide network of offices.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.