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Five Steps to take before closing your limited company in the UK

Closing your limited company may be your plans for this new month, it might be due to trying new things and dissolving the business or just changing the way your business is been run.

This might be as a result of COVID 19 or just the rate of inflation currently in the UK and as a last result, you have decided to close the limited company.

In this blog post, we have explained five steps to take before closing your limited company.

closing your limited company

One of the most common methods of closing a limited company.

One of the methods of dissolving a 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 mistake that is made by owners is to strike off the company without taking the last compliance requirements.

By doing this several problems can arise in the future.

closing your limited company

1 Preparing, submitting and paying tax on the last set of accounts.

When a limited company closes down, it 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 for payment plans with the revenue.

If this is not done, you will have to reactivate the company after it has been struck off to make this payment and then penalties for late submission will be applied at that point.

2. Withdrawing money from the company’s bank account closing your limited company.

This sound like an obvious step to take, but you will be surprised how many clients have come across that initiated the closing of the company and never withdrew the money in the company’s bank account.

Closing a company either by striking off or by liquidation, brings an end to the life of the company or that means that the company’s bank account is taken over by the crown.

So to withdraw the funds, you will have to activate the company, and then pay all the penalties of not submitting accounts whilst the company was struck off before the payment can be withdrawn.

So depending on how much is been held because the cost of withdrawing the money could be higher than the funds being controlled most owners just forgo the money.

closing your limited company

3. Paying all the creditors of the company, especially the HMRC before closing your limited company.

Before closing your limited company with the use of the striking-off method or liquidation, you are required to pay all the creditors.

When the limited company owns a debt, the creditor can block the company from being struck off so as to ensure that the outstanding debt is paid.

If it’s by liquidation, the director of the limited company will have to appoint liquidators to help the process of liquidation, one of the main jobs of the liquidators is to enquire how the debt was used, and evaluate the asset available and how to distribute resources amongst creditors.

So before thinking of striking off your limited company, you need to ensure no debts are outstanding.

4. Mistake of not disposing of the assets of the limited company closing your limited company

A company that has assets has to dispose of these assets before beginning the process of closing its limited company.

For most one-owner companies, the asset is usually transferred to the directors for no consideration or cost, in order to be able to do the transfer efficiently, it must be transferred to the director or shareholder 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 cost in their self-assessment returns 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.

closing your limited company

5. Submitting your last self-assessment returns before closing your limited company.

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 limited company, you would have to submit your last tax return and inform HMRC of the changes in circumstances

If you are not required to submit a self-assessment return for other reasons, you have to inform HMRC by calling 0300200300.



Conclusion on five steps to take when closing your Company in the Uk.

There are other compliance issues to consider before closing your limited company

Such as preparing your last Vat Return and making any payment outstanding.

Or submitting final PAYE real-time submission if this is applicable to the business and also make outstanding payments 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