Closing your limited company could be one of your plans for the New Year.
This might have been caused by the effect of COVID19 and the best business decision is to close the limited company.
In this blog post, we have explained five mistakes to avoid when closing your limited company.
One of the most common methods of closing your limited company.
One of the methods of closing your limited company is through the use of disincorporation.
Disincorporation is the process of closing the company by striking it off from the company’s house.
However, the common mistakes that are made by owners are to strike off the company without taking the last compliance requirements.
By doing this several problems can arise in the future.
Mistake of not preparing, submitting and paying tax on the last set of accounts.
When closing your limited company, you need to be aware that this action automatically brings the chargeable accounting period to an end.
The last accounts have to be prepared and submitted to HMRC.
Before striking off the company, the owners are required to submit the last set of accounts and pay the final tax or make arrangements of payment plans with the revenue.
Making the mistake of not submitting their last self-assessment returns.
Most shareholders are usually registered for self-assessment.
The self-assessment is used to declare the dividend paid and tax paid to HMRC.
When you are registered on the self-assessment system, you are automatically required to submit yearly returns until such a time you advise the revenue of your change of circumstances.
Upon closing your company, you would have to submit your last tax return and inform HMRC of the changes of circumstances
If you are not required to submit a self-assessment return for other reasons, you have to inform HMRC by calling 0300200300 or contact
Mistake of not informing the HMRC to adjust your tax coding.
Tax codes are used to determine the tax to be paid by individuals in the UK.
When you receive other incomes such as dividends from limited companies your tax codes are adjusted so that tax can be paid for the dividends during the year.
So when you close your company, you need to inform the HMRC of the need to adjust your tax code back to reflect that.
Mistake of not paying all the creditors of the company.
Before closing your limited company with the use of the striking off method, you are required to pay all the creditors.
Creditors can be any individual bank, HMRC company etc
One of the procedures when closing the company is for the company house to advertise the striking off to the public
When there is outstanding unpaid debt, the company will not be closed.
Mistake of not disposing of the assets of the limited company.
A company that has assets has to dispose of these assets before closing your limited company.
For most one owner companies, the asset is usually transferred to the directors for no consideration
To do this, it must be transferred at the lower market value at the date of transfer and the cost.
This would be treated as a dividend in specie and the shareholder will put the value in their self-assessment as a dividend received from the company.
However, if the assets are disposed to an unconnected person, the consideration would be declared to HMRC.
This will be declared on the income received by the company.
The amount used is the lower of cost and actual consideration and this may give rise to balance charge or balancing allowance.
Conclusion on five mistakes to avoid when closing your company
There are other compliance issues to consider before closing your limited company
Such as preparing your last VAT Return making any payment outstanding.
Or submitting final PAYE real-time submission if this is applicable to the business and also make an outstanding payment or make arrangements for payment.
The reason for not making this mistake is mainly it could be very costly to correct all these mistakes if made before the closure of the company.
I hope this blog has been helpful, If you would like us to support your company with accounting and tax issues, kindly contact us