Maybe you’ve just had a job offer that’s too good to refuse. Maybe you’ve lost the passion for what you’re doing? Maybe you’re just not making the money that you need. Maybe a new opportunity has come along? Whatever the reason, sometimes you just have to say “That’s enough, I quit!” and close down your business.
But is it really that easy? Can you just down tools and call it a day? Let’s take a look at what’s required to wind up your business, whether you’re self employed or have a limited company. I’ll be making the assumption that you’re the only business owner and the business will be closing. If someone else is going to take over the business then it will be a different situation as the business will not be shutting down.
When does a business close?
The business ceases to trade when you make your final sale. You might want to run your final accounting period a little longer to tidy up some outstanding expenses or you can put a provision for them in your accounts (called an accrual – find out more here).
Preparing to wind up
As the business starts to wind down, you want to make sure you leave everything neat and tidy with HMRC. Unfortunately there is no one-stop shop and each tax has slightly different requirements.
Cancel your VAT registration. This is straightforward to do via your online VAT account. You’ll have to submit a final VAT return from the end of your last quarter to the date you cancelled the VAT. This has to be done even if you didn’t have any sales in the period. It will be due to be submitted and paid one month and 7 days from the date you ceased.
Watch out – If the business still has assets such as vehicles or large tools and equipment that are worth more than £6,000 at current market value, then you’ll need to include them in your final VAT return. You’re effectively going to be giving back some of the VAT you claimed originally as if you were buying them. If the VAT on the assets is less than £1,000 then you don’t have to do this.
Close down your payroll scheme – You’ll cease any employees that you have (including yourself) and give them their P45’s. You then submit a final payroll return to HMRC. Your payroll software should have an option that allows you include a notification that the payroll is ceasing as part of the HMRC RTI submission. Don’t forget to pay your final PAYE and NIC.
If you have subcontractors under the Construction Industry Scheme then you can notify HMRC by phone.
So you’ve cancelled everything and you are ready to close the business. What’s next?
If you’re winding up a sole trader or partnership business then once again your main port of call is HMRC to let them know you’re no longer self employed.
You’ll still need to complete a final self assessment tax return even if you weren’t self employed for the whole year.
Remember – As a sole trader you and the business are the same legal entity. If the business is insolvent then you could be personally liable for any business debts.
There is more involved with closing a limited company.
You’ll need to notify HMRC and complete a final Corporation tax return including your accounts to cessation. You can wait until your accounting period end date or if you’re in a hurry, you can submit your final corporation tax return early.
Once the corporation tax is done, dusted and paid, you can close the company down officially with Companies House.
The easiest way is to complete a DS-01 form which is a request for the company to be struck off. If the company has no debts then this process should happen quite quickly. Don’t send the form until everything is paid off and the bank account is closed down. Once the company is stuck off you’ll no longer have access to the bank account or any funds in the bank.
If the company has substantial assets then a Members Voluntary Liquidation may be a better option (although beyond the scope of this article).
Another option if you wish to cease trading but keep the company name, is to let it go dormant. You will still have to complete the annual confirmation statement each year and submit very reduced dormant accounts to Companies House.
If you don’t submit the annual confirmation statement then Companies House will automatically start the striking off process. However they can also potentially charge fines of up to £5,000 , so it’s always better to submit the DS-01 rather than take this chance.
Last chance accounts
Your final set of accounts has extra considerations with the potential to save or cost you tax depending on the decisions that you make around your assets and any losses that you have. It’s a very good idea to get an accountant to help you so that you aren’t missing out or costing yourself extra money.
You’ll need to deal with each of your HMRC taxes individually.
Get accountancy advice for your final accounts and tax return, if you can.
Make sure everything is sorted out and the bank is clear before you close a limited company.