Everything must come to an end eventually, even a limited company. Whether you have accepted employment or your contract has simply finished, it’s likely you will need to consider your options regarding your unwanted company.
Do you actually no longer need your company?
It’s a common trend that, just because your company is unwanted, you must close it down. However, before rushing into anything, it’s always worth taking a moment to think about the future.
If you plan to return to contracting in the future then perhaps closing your company might not be the best option. Closing down a company can be long-winded and costly, so consider why you need to close the company in the first place.
Okay, you no longer need your company
The next step is to speak to your dedicated accountant. They will be able to explain the options available and consider your individual circumstances to establish the best way forward.
So what are my options?
On closing your company, all assets (including cash) will be transferred to you and could potentially impact your personal tax liability.
If the remaining assets in the company are less than £25,000, the final distribution of profits from the company will be deemed a capital distribution. This means they will be subject to capital gains tax on the amount over and above your annual exempt amount of £11,700.
The capital gains tax payable will depend on whether you are a basic or higher rate taxpayer. However, if you meet the criteria to claim Entrepreneurs Relief, you will be taxed at 10% on the full distribution, regardless.
However, if your assets are more than £25,000, the final distribution will be deemed to be income and taxed as a dividend. This could potentially be at a rate of 32.5%, possibly even 38.1%.
Read our guide on ‘How to close your company and extract the profits at 10%‘.
The practical bit
If you have less than £25,000 in assets, the process is relatively simple. The final accounts are prepared and these, and your corporation tax return, are both submitted and any tax liability paid to HMRC. Once all payments have been made, the bank account is cleared down and a DS01 form is sent to Companies House to commence the closure.
However, with assets over £25,000, you may want to consider using an insolvency practitioner to close down the company and help distribute the remaining cash tax efficiently.
How can Clever Accounts help?
If you wish to find out more about closing down your company, your options or even how much tax could be payable, please contact us.