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How to close down my contractor business
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Find out how to close your limited company in the most tax-efficient way
If you want a new challenge or no longer need your contractor business for any reason, there are several ways you can close it down. Happily, that will bring an end to the costs and administrative duties associated with running a limited company, so you can move on with a clean slate. But what are the different ways of closing a contractor business and when do they apply?
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The last thing you want is to close your contractor business only to start a new one a couple of years down the line. If you think you may need the contractor business in the future, it might be better to make it dormant. Dormant companies cost around £100 a year to maintain, but it may be cheaper and less time-consuming than closing the company and re-incorporating it in the future.
Making your contractor business dormant is relatively straightforward. You’ll need to:
- Tell all clients and agents that you’re no longer trading
- Chase any unpaid invoices
- Pay any outstanding bills
- Tell HMRC your company is dormant for Corporation Tax
- Send a final company tax return to HMRC and pay any remaining liabilities
- Prepare your final accounts and file them with Companies House
- Close your company bank accounts
To maintain the dormant company, you’ll also have to submit an annual confirmation statement to Companies House and provide abbreviated accounts for every year you remain dormant.
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If you know you want to close your contractor business, the right approach depends on the circumstances you find yourself in. These are your options.
Voluntary dissolution (strike-off)
The voluntary dissolution process, also known as strike-off, is the simplest and cheapest way to close your solvent contractor business. You can use this method to close your company if the total value of assets and funds to be distributed is less than £25,000. The distributions will be treated as Capital Gains and Asset Disposal Relief may be available.
You need to complete the striking-off form DS01 and send it to Companies House along with a payment of just £10. If there are multiple directors of the company, the form must be signed by a majority of them.
Companies House will then publish official notice of your strike-off in the Gazette to allow any third parties to object to the closure. If there are no objections, your company will be struck off the register after three months.
Importantly, any funds or assets that remain when the company is struck off will become the property of the Crown, as will any payments your company receives in the future, such as HMRC rebates. Therefore, you should realise any assets or transfer their ownership to the shareholders before completing the DS01 form.
Dissolving your company is something you can do yourself. You need to:
- Informal relevant parties, such as HMRC, business creditors, banks and insurers
- Settle all your outstanding payments, including tax liabilities
- Sell and distribute the 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
It’s worth seeking professional advice before striking off your business, as the company can be investigated by the Insolvency Service if it has not paid all its creditors. HMRC can also launch an investigation if it believes issues exist with the company’s historic tax affairs.
Members’ Voluntary Liquidation (MVL)
If your contractor business is solvent and has over £25,000 in retained profits and assets, a Members’ Voluntary Liquidation is the most tax-efficient way to close it down.
In an MVL, you’ll need to appoint an insolvency practitioner to act as the liquidator and handle the process on your behalf. Although this will involve a fee, you’ll be able to unlock the value of your company in a tax-efficient way. Your tax liability could be reduced to just 10% if you’re eligible for Business Asset Disposal Relief.
You can start the process by:
- Making a declaration of solvency
- Holding a company meeting within five weeks to pass a resolution for voluntary winding up
- Appointing an insolvency practitioner to act as the liquidator
- The liquidator will then take charge of the company, settle any outstanding creditor claims, realise the assets, repay any creditors and distribute the remaining funds to the shareholders
An MVL is only suitable if your company can repay all its debts, including interest, within 12 months. If the company receives a creditor claim that it cannot pay, the process will switch to a Creditors Voluntary Liquidation (CVL), and this could have serious consequences for you as a director.
Creditors’ Voluntary Liquidation (CVL)
If your contractor business is insolvent and cannot pay its debts when they’re due, strike-off and solvent liquidation are not available to you. Instead, you’ll have to close it down via a Creditor’s Voluntary Liquidation.
Again, you must appoint an insolvency practitioner, who will act as the liquidator. They will take control of the business and realise its assets and distribute them to the creditors. The business will then be closed and any remaining debts will be written off.
As a company director, you may also be able to claim director redundancy pay to help you cover the cost of this process.
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Whether your contractor business is solvent or insolvent, has assets or is asset-free, we can provide professional guidance to help you close your company in the simplest and most tax-efficient way. Please get in touch with our team of insolvency practitioners to find out more. We offer free, no-obligation consultations and operate from a nationwide network of offices.
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