Deciding to close your limited company is tricky, and we know that from experience. There are many ways that you can successfully close a company, but the most suitable method depends on your circumstances. In this blog, we’re letting you know how to close a limited company.
If you’re worrying about closing your company, we are here for you. We are happy to offer free, no-obligation advice to help you get things back on track. We have actually been where you are right now and come through the other side to tell the tale. Our advice is aimed at you, the director, getting you the best outcome in a really stressful situation. We don’t judge, we just offer free, independent, no strings and no obligations advice, and according to Trustpilot, we are very good at it!
What is a limited company?
A limited company is a type of business set-up. When considering closing one, you may come across advice on ‘how to close a ltd company’. The term ‘ltd’ refers to a limited company. They may also be referred to as a ‘private limited company’.
Limited companies are popular choices for many business owners due to the various benefits that they provide. The most significant benefit is that the limited company is a separate legal entity from the director or directors. This means that the company is responsible for debts rather than the company directors. However, there are some instances where this is not the case.
Here are some scenarios where a director could become liable for the company’s debts.
- Wrongful trading has occurred
- Overdrawn director’s loan account
- Preference payments have been made
- Personal guarantees have been signed
- Fraudulent trading
- Bounce back loan fraud
If you suspect that you have committed any of these, you need to be upfront about them. We’ll let you know more about the process of closing down a limited company later in the blog.
Why do people close companies?
There are various reasons why a company director might decide to close their company. Here are some of the most common reasons.
- Retirement
- Financial struggles – they now have an insolvent limited company
- Changing the direction of the business
Without financial struggles, you will find that you have the most options for company closure available to you. Financial struggles are often labelled as insolvency, particularly when there is no real hope of recovering from the financial distress.
Being insolvent means that you cannot afford to pay your debts when they fall due or that your liabilities are worth more than your company’s assets. This is a common situation that directors find themselves in, so there’s no need to worry or feel alone.
In most cases, you will still have a couple of options for closing your limited company. The best thing to do is seek advice as early as you can. Seeking professional advice early shows that you are adhering to your director’s duties, which will be viewed positively in a company liquidation.
How to close a limited company
So, we’ve let you know what a limited company is and how directors can increase their risk of being made personally liable for company debts, but now it’s time to tell you how to close a limited company in the UK.
As we mentioned before, you can use various liquidation methods to close your insolvent company successfully. At the end of these methods, your business will cease to exist and be removed from the Companies House register.
Creditors Voluntary Liquidation (CVL)
A creditors’ voluntary liquidation, or liquidation for short, is commonly used by directors to close down a limited company that has become insolvent. To begin this method, the company’s directors will make the decision to close the company down. They will seek advice from a licensed insolvency practitioner and begin the process.
Providing that no wrongdoing is uncovered, the creditors’ voluntary liquidation process is straightforward and unsecured debts are written off. However, if wrongdoing is found, then you may be held liable to pay the debts back. This can include debts to HMRC, suppliers and even bounce-back loans if you took one for your company.
One of the biggest benefits of a creditors’ voluntary liquidation (CVL) is that you are able to choose your own licensed insolvency practitioner. Before you choose one of the insolvency practitioners who is right for you, you must get all of the costs and what’s included in writing. This will reduce the risk of you needing to pay much more money out later down the line. You should also ensure that the insolvency practitioner has looked into your director’s loan account and identified any cases of wrongful trading before you officially appoint them. If you have any overdrawn loan accounts the insolvency practitioner is duty bound to try and recover them once the company enters liquidation. This can leave the director facing additional fees, which they are to pay personally. Director First will help you understand any of these issues upfront before you are asked to make a decision, and we will assist in negotiating any overdrawn directors’ loan settlements.
Compulsory liquidation
Compulsory liquidation is generally best avoided if possible, as it gives directors the least amount of control. They are unable to choose their own insolvency practitioner, and they have very little say over the liquidation timeframes.
When a business enters a compulsory liquidation, it will have been forced upon them by their creditors. The process begins when creditors who have failed to get the money they are owed have filed a winding-up petition against the company.
A winding-up petition or winding-up order is sent by the Official Receiver, along with a court date. The court date indicates when the creditors must be paid the money they are owed. If you fail to pay the creditors by this date, your company will be closed through a compulsory liquidation.
Your company bank accounts and tax returns will be investigated during the company closure. They will be looking at the last three years before the company became insolvent. They will be looking for elements that could have helped to avoid liquidation.
Some directors find that they are struggling with so much financial debt that they ask their creditors to wind up the company. While it is not the most ideal scenario, if there is no money and no company assets to sell, then it could be the only option. It might be worth looking into Business Asset Disposal Relief if you do have any business assets.
Members’ voluntary liquidation (MVL)
A members’ voluntary liquidation can be used by a solvent company that has few debts to pay. It is a tax-efficient method. The aim of using this form of liquidation is that companies can pay their debts over a specified time frame. This gives the directors more breathing space and means that creditors can be mostly paid what they are owed.
A members’ voluntary liquidation (MVL) is not right for everyone, and there are some criteria that you must meet to qualify. A solvent limited company is one that can afford to pay its debts when they are due from the company bank account.
A company voluntary arrangement or CVA is another example of where a business organises to pay its debts back over a period of time. It also allows directors some breathing space to reorganise the company and make any necessary changes. A company voluntary arrangement does not result in the company being closed and is, therefore, not a method of liquidation.
What’s the cheapest way to close a limited company?
The cheapest way to liquidate a company is through a voluntary strike-off or dissolution; however, they are not suitable for everyone. A strike-off involves filling out a DS01 form for just £10 and sending it to Companies House. Only businesses that have no outstanding debts can use this method.
Insolvent companies that do have outstanding debts cannot use this method and will find themselves in more trouble if they try to use it. During a voluntary strike-off process, the company is advertised in the Gazette, and creditors are often notified. When they see your business being advertised, they will object, and you could face serious consequences, such as personal liability.
Companies that try to use the voluntary strike-off method often find themselves in compulsory liquidation very soon after. It’s also worth noting that companies that use the strike-off method can be reinstated for up to 20 years after closure. This means that the company can be reopened, and you will be expected to pay back the debts you owe.
Under no circumstances should you try to use the voluntary strike-off method if you have a bounce-back loan or CBILS outstanding. Seek professional advice if you are unsure of what to do next.
The voluntary strike-off method is much cheaper as there is virtually no paperwork involved. There is also no requirement for an insolvency practitioner for a company strike-off.
What do I do about closing a company with debts to HMRC?
HMRC is one of the UK’s biggest creditors, and they’re unlikely to stop chasing you until you pay the money you owe, whether it’s PAYE, VAT or corporation tax. The best thing to do is to keep them updated. If you cannot pay currently, you might be able to pay in a few months, so tell them! They could even offer you a Time To Pay arrangement.
HMRC is labelled as an unsecured creditor, which means that if you enter a liquidation and have not committed any wrongdoing, the debts will be written off.
How to close a company that never traded
A company that never traded should have no debts, which means that closing it should be fairly simple. Without debts, you can use the strike-off method, which costs only £10. You can download the DS01 form from the government website and send it to Companies House, which will close the company for you. They may label your company ‘dormant’ if it has not traded.
Can I close a company and open a new one?
In most cases, yes, you will be able to close the existing business and start a new company. In order for this to be successful, you must have acted responsibly as a director. This means that you have not committed wrongdoing with a previous company and that you have closed the company down correctly.
Directors who commit wrongdoing can find themselves facing director disqualification for a number of years. This means they are unable to open a company during this time.
There may be some rules to consider when it comes to the company name and more.
How much does it cost to close a limited company UK?
The cost of closing a limited company in the UK varies depending on many factors. One of the biggest factors is how many creditors you have and how much you owe them.
Generally, a small liquidation will cost you around £4000 – £6000 plus VAT. As the number of creditors and money owed increases, the cost of liquidation does too.
When choosing from licensed insolvency practitioners, it’s important to retrieve quotes from a few. This will help you to establish who is offering the most in terms of service. It’s recommended that you don’t choose the cheapest liquidator, as this will likely end up costing you more later down the road.
Check that the insolvency practitioner has looked into your company accounts, assessed your directors’ loan and more before appointment. This can help to reduce the risks of further issues.
How long does closing down a limited company take?
You can have a company in liquidation within a few weeks, and once the insolvency practitioner is appointed, your role as a director ceases. Once an insolvency practitioner is appointed, the time to close the liquidation down can vary too. Most liquidations can take anywhere from three months to one year to complete. Some more complicated liquidations may take even longer. Your company is officially closed when it has ceased trading and has been removed from Companies House.
A strike-off usually only takes around three months, but the company must meet certain criteria, such as not trading for three months prior. We’d recommend seeking professional advice before you start the strike-off process.
I’m ready to close my limited company
Ultimately, the process you choose needs to be right for your business. We know how confusing the world of insolvency can be, which is why we are here to help. We can offer you honest, confidential advice to ensure that you get the best outcome with your insolvent company. Seek advice early regarding insolvency proceedings.
We hope this blog has been helpful to you regarding how to close a limited company in the UK. We’re just a phone call away at Director First – contact us.
I'm Chris Worden, Managing Director at Director First. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice.