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Should I close my company or make it dormant?
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Which is the best option for my limited company?
You don’t have to close your company if it’s no longer trading. If there’s a chance you might need the company again, making it dormant could be a better option. It will allow you to quickly revive the company in the future and prevent anyone else from using your trading name.
Deciding whether to close your limited company or make it dormant is a big decision. Closing a company effectively strikes a line through it. It will cease to exist as a legal entity so you can move on without any ongoing administrative or accounting obligations.
Alternatively, you could choose to keep your limited company dormant in case you want to use it again. You can keep a limited company dormant indefinitely, although it does bring some minor administrative responsibilities. businessrescue.co.uk/closing-a-limited-company
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A dormant company is no longer active and has not performed any business transactions during its financial year, but it still exists legally and remains on the Companies House register.
If you want to step away from running the company for a predetermined period or would like a new challenge but feel like you may want to return to the business at some point in the future, dormancy could be the best option.
You can start trading a dormant company again at any time. You’ll need to register for Corporation Tax within three months of the date you start trading and send accounts to Companies House within nine months of your company’s year-end.
Even if your company is inactive, there are a few simple steps you can take to make it officially dormant:
- Cease trading, pay all outstanding creditors and cancel any remaining business contracts with utility providers, customers and suppliers, etc.
- Pay any outstanding tax liabilities to HMRC and inform your local Corporation Tax Office that your company is dormant.
- You don’t have to tell Companies House that your company is dormant, but you do have to file a confirmation statement and dormant accounts annually. Dormant accounts are a simplified version of your annual accounts.
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Making your limited company dormant rather than closing it down gives you the flexibility to trade the business in the future without having to go through the limited company setup procedure. Other benefits include:
- It’s inexpensive to keep a dormant company
- There’s no limit on how long you can keep it dormant
- You don’t have to make any firm decisions about the company’s future
- You can protect the company’s trading name
The downside is that you will have to fulfil some administrative obligations to keep the company dormant. They’re relatively simple but it’s something you will have to do.
If you want to permanently cease trading and you’re sure you’ll never need the company again, the best approach is to close it down. In this case, all your administrative and accounting obligations will end so you can move on and put the business behind you.
When you close a company, it is struck off the Companies House register and ceases to exist as a legal entity. If you decide you want to trade again, you’ll have to set up a new limited company and you may not be able to use the same trading name.
There are several ways to close a limited company. The right closure method for you depends on whether your business is solvent and the value of its assets.
Dissolving a company
If your company is solvent, does not have significant assets and has not traded or changed its name in the last three months, you can apply for Voluntary Strike-Off, also known as Dissolution. This is the simplest way to close a limited company and it costs no more than £10.
You can complete the process online or submit form DS01 to Companies House. As long as there are no problems with your application, the company will be struck off the Companies House register, typically after around three months.
Liquidating a company
If your company has significant assets or is insolvent, you’ll have to follow a liquidation process.
- Your company is solvent - For solvent companies with assets of £25,000 or over, a Members’ Voluntary Liquidation (MVL) will usually be the most tax-efficient way to close it down. The funds you take out of the company will be subject to capital gains tax rather than income tax, which can save you a lot on your tax bill.
- Your company is in debt - If your company is insolvent, you can close it voluntarily via a Creditors’ Voluntary Liquidation (CVL). In this process, you appoint a liquidator who will repay the company’s creditors from the sale of its assets before striking it off the register. This can be an effective way to close a struggling company before things get any worse.
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Closing your company is the right choice if you’re confident you will not want to trade it again. The benefits are:
- It removes any administrative or accounting duties so you can move on
- Striking off your company is a quick and inexpensive way to close your company
- Liquidating a solvent company allows you to extract the value from the company in a tax-efficient way
- Liquidating an insolvent company allows you to put creditor pressure and threats of legal action behind you
The downside is that if you do decide to trade again, you’ll have to go through the company formation process. You also have to make sure you close your limited company in the right way. Failure to do so could lead to serious tax implications or creditors could apply to restore your company to the register if you still owe them money.
If you’re unsure whether to close your company or make it dormant, we can help. We provide a confidential, no-cost assessment to understand the best approach in your circumstances. Get in touch for a same-day consultation or arrange a meeting at one of our 100+ offices nationwide.
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