On your business journey, there may come a time when there’s a valid reason to suspend or cease trading as a limited company.
You might be starting up a new business and feel that your current company has run its course. Or you may have decided that your current enterprise just isn’t turning out to be profitable and want to close the limited company down and cut your losses.
The key thing to focus on is making sure you close down the company via the correct protocols – and that all the legal, financial and tax loose ends are tied up.
Steps to take when ceasing to trade
When your company is planning to cease trading, the actions you need to take depend on a number of factors. Your actions will be different, depending on whether:
- The company is solvent (or not)
- The value of your net assets as a business
- Whether or not you want to keep the limited company alive but inactive.
As such, understanding your financial position and your ongoing plans for the company are both essential things to know before you cease to trade. There are also some other important considerations to take into account during the course of process.
- When a company ceases to trade, it can still be registered at Companies House. The most common reasons for keeping the company registered are a) so that the entity can be used in future for a similar or different enterprise, b) because you want to stop any other person from using the company name, or c) because you have surplus cash and retained earnings that you want to take out as dividends in future years.
- If you’re registered for VAT, you should notify HM Revenue & Customs (HMRC) that you’ve ceased to trade. You can do this online or by sending a form VAT7, and should notify HMRC within 30 days. If you’ve got any stock or other assets where the value includes over £1,000 of VAT, the VAT must be included in the final return.
- If you’re an employer, on your last Full Payment Submission or Employer Payment Summary you must tick the box informing HMRC that it’s the final submission before the PAYE scheme is closed down, and include the date of cessation. Employees should be given P45 and P11D forms, and the P11D submitted. Any tax and National Insurance due should be paid to HMRC. Where appropriate, you should comply with any redundancy notices, payments and procedures.
- Any contracts you have should be terminated unless you want them to continue while the company isn’t trading. Remember that, as a director, you may have given personal guarantees of payment; for example, with things like rental of business premises etc.
- Where you wish to take over any contracts personally – e.g. email services with the associated domains, mobile phone contracts etc. – you should get those transferred.
- If the company is solvent, no longer required and hasn’t traded for three months, you can apply to Companies House for the company to be struck off, using form DS01, which can be submitted online. Copies of the form DS01 should be sent to any interested parties, which includes:
- Members (shareholders)
- Employees if not terminated
- Creditors (businesses and people owed money)
- Any director who didn’t sign the form
- Trustees of any relevant pension fund
- Note that if the company has assets of more than £25,000, these cannot be returned to the shareholders as a capital distribution unless the company is wound up through a Members Voluntary Liquidation. This has to be undertaken by a licenced insolvency practitioner, so the DS01 route isn’t applicable.
- If you want to keep your company open but dormant, you’ll be required to file annual accounts and a confirmation statement, even if it isn’t trading. You can ask HMRC to waive the need to submit annual tax returns if the company is completely dormant.
Talk to us about ceasing to trade
If you’re planning to cease trading, we can advise you on the best course of action to take. We’ll look at the financial state of the company itself, your plans for the limited company and any (often very significant) tax implications for you, as the shareholder.
Taking these considerations into account helps to tick all the correct regulatory boxes while making sure you’re not hit with any unexpected tax outcomes. Get in touch to talk about ceasing to trade.