If you are a director considering closing your limited company you will need to do research to understand what options are out there.
It might be that your business is profitable but you have decided it is the right time to close. You may wish to free up funds or retire, or the business might insolvent and is no longer sustainable.
Whatever the case, to help company directors get on the right track Clarke Bell have put together this guide on how to close a company online.
Closing a solvent company
Members’ Voluntary Liquidation
Members’ Voluntary Liquidation (MVL) can be a good option for directors looking to close their solvent company.
An MVL is an option open to solvent companies which formally winds-up and closes the business. To be eligible for an MVL a company must be solvent and will typically have assets of £25,000 or more.
This is a voluntary process that needs to be initiated by company directors and shareholders at a time that is right for them.
There are several reasons that a director might choose an MVL. It might be the case that the director is looking to move to a PAYE role (maybe due to the new IR35 rules), they are moving abroad, they are retiring or they are looking to discontinue and sell part of their business.
To begin the MVL process, the company director will firstly need to call a meeting with company shareholders. Then a licensed Insolvency Practitioner (IP) must legally be appointed to oversee and carry out the process.
Closing a company through an MVL is a HMRC approved, tax-efficient way of closing a business. This is why it is a favourable method of closing a business amongst many directors. Any funds taken out are subject to Capital Gains Tax rather than Income Tax, which is set at just 10%.
This is a lot less than the level of Income Tax you would otherwise be charged which is 18% for the basic level and 28% for the higher level, leading to big savings for the director.
There are additional advantages for companies that qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief).
This means that the director can sell all or part of their business and will pay 10% in Capital Gains Tax on profits over the lifetime of the business. This is capped at £1 million. This can save directors a significant sum on their tax bill. Making Members’ Voluntary Liquidation a quick, easy and tax-efficient way of closing a business and freeing up funds.
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Dissolution
Another way to close a company online is through dissolution.
A director can voluntarily dissolve their company by completing a
DS01 form. In this case, a compnay is struck off the Company House Register.
Any company can be dissolved as long as:
- it has not changed names within the last 3 months,
- has not traded or sold off any stock in the last 3 months,
- and is not being threatened with liquidation? and doesn’t have any agreement in place with creditors like a Company Voluntary Arrangement.
Dissolving is useful when a company no longer has a use and has fulfilled its purpose. This might be because the director wishes to move abroad, wishes to retire or no longer has a purpose for the business.
It is worth noting that there have new developments within The Insolvency Service who have gained powers to investigate the director of a dissolved companies in order to ensure that they are not taking advantage of the system.
Clarke Bell has been shocked to see insolvency firms promoting services which claim that if directors use their services, they will not be subjected to liqudator’s investigation as this is in clear violation to the rules. A reputable Insolvency Practitioner will be clear and transparent in telling the client that the investigation is in fact a necessary arm of the liquidation process and that it shouldn’t be overlooked.
These new powers will let the Insolvency Service address this matter to make sure that the thousands of companies that are dissolved every year have been done so correctly.
In the case that a director has absued the company dissolution procedure then they might find that HMRC will request the overturning of the dissolution in years to come as the company owes them money. Clarke Bell have seen this happen 3 years after the company was incorrectly dissolved.
The directors who we help do not want this worry hanging over them. They prefer to close down their company in the correct manner.
To find out more about dissolution and how this differs from liquidation, check out our handy guide.
Closing an insolvent company
Creditors’ Voluntary Liquidation (CVL)
Creditors’ Voluntary Liquidation is also a completely voluntary form of liquidation and closing a company, however it is a route only open to insolvent companies, meaning those that can no longer pay their bills, debts or cover daily costs.
There are two main ways to test whether your company is insolvent:
- The cash flow test: this establishes whether a company can pay its bills and day to day costs. If it can’t fulfil these commitments, it is deemed insolvent.
- The balance sheet test: this establishes whether a company has more assets than liabilities. If so, it can be deemed insolvent.
This is an option open to companies that are no longer sustainable and do not have a viable future – and the directors want to avoid their company being forced into compulsory liquidation.
To enter into a CVL, 75% of the company’s shareholders must agree. Next, an Insolvency Practitioner will be appointed to organise the company’s affairs and carry out the liquidation process.
A CVL is a good route for company directors of an insolvent company. By putting their company through the CVL process, directors are showing that they are taking proactive steps towards meeting the company’s debt obligations and paying back creditors. This means you can safeguard your reputation as a director, leaving more options open to you in the future.
Looking to close a company online? Let Clarke Bell help you
If you are looking to close company online, Clarke Bell are here to help.
We work with a wide range of small-medium sized businesses, whatever sector, wherever you are in the UK.
We offer a free consultation about your situation where we will get to know your business and recommend the best solution for you.
This can be done face-to-face, over the phone or on the Internet. This means we make it easy to close your company online wherever you are.
Whether you are looking to close your insolvent company with a Creditors’ Voluntary Liquidation or close your solvent company with a Members’ Voluntary Liquidation, we are here to help.
With Clarke Bell, you can be sure that you will get the best, professional advice for your situation. We have been trading since 1994, in which time we have helped thousands of company directors to close their company with the liquidation process.
To see what how we can help you, and to close your company online, simply get in touch today.
