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We're frequently asked questions like - should I keep my company going? Should I close it? If I decide to close it, how do I do it and what are the tax and other financial implications of doing so?
Here we look at some of the questions regularly asked by limited company directors who are deciding on the future of their company. And the legitimate tax savings which can be made on a company closure if the right advice is given.
The process by which a company is closed will depend upon several factors. Generally, all the company’s assets are realised, and its remaining debts paid. The cash that is left (if any) can then be distributed to the shareholders (usually the director /shareholder).
An informal closure of a small company can be achieved by striking off from the Companies House Register. If a company has a potential capital distribution of more than £25,000 then it must be closed via a Members Voluntary Liquidation (MVL) which involves the use of a licensed Insolvency Practitioner.
Even if your company is not trading, you don’t necessarily have to close it. Your company could be non trading but you could carry out your new assignment either as a direct employee or as an umbrella worker. Once that’s over and you obtain future work outside IR35 you can resume trading through your company.
This will depend upon the rates of tax you pay on your earnings and other income. Dividend tax rates are lower than tax on earnings and you are entitled to a 0% dividend allowance of £1000 each year (2023/24) but rates could change in the future. You should consider whether some of the other options covered by answers to other questions below might be more appropriate for you.
Probably not. Unless you want to keep the company name for any other business purposes, you can apply for the company to be struck off from the Companies House Register.
No. The company has a debt to HMRC and they will object to the striking-off. You may also be pursued by them, as a director, for settlement of the tax due.
Yes, but if you have other significant employment income, you will pay tax under PAYE on the bonus and your company may have to account for both employee and employer National Insurance Contributions on it.
You are only required to proceed down the formal voluntary liquidation route (involving an insolvency practitioner) if the amount to be distributed is more than £25,000 and is being distributed as capital and not as a dividend.
This is where the MVL (Members Voluntary Liquidation) may be the most appropriate. You need to appoint an Insolvency Practitioner to close the company and professional fees will be payable for their services.
Again, the final distribution of profits can be made as capital and the Capital Gains Tax Allowance used. Any remaining Capital Gains are taxed at 20% which is less than the higher rates of income tax.
Furthermore, you may be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) which can reduce the Capital Gains Tax rate to just 10%!
Not necessarily. Again, speak to your Accountant or the PayStream Tax Team on different options. They can also explain how to account for say, a company vehicle, which you want to take into personal ownership on closure of the company. Read more about Director's Loan Accounts here.
You can see from the range of questions and answers that there are a lot of scenarios which arise on company closure. It is very important to seek advice before acting on the closure of your company. Doing so will help you to avoid potential tax pitfalls and highlight tax saving opportunities for you.
If you’re an existing client, we recommend that you contact your dedicated accounts team in the first instance to talk through any closure plans which you may have.
If you would like to know more about our Tax Advice Service, contact our Tax Team today.
