Do You Need To Close Down Your Company?

Do you need to close your limited company? The answer is it depends on the solvent status of the company. There is usually no absolute need to close a solvent company but an insolvent one that cannot be rescued will usually have to close.

If your limited company is solvent, creditors will not usually be knocking at the door and demanding their money be repaid. This is much more likely to be the case when a company is insolvent.

When a company is insolvent the need to close your company can be more pressing because creditors who you cannot pay may take action against the company of their own to wind it up.

It is at that point the need to close down may be more urgent, particularly if you wish to have some control of the process until a liquidator is appointed. 

But do you really need to close down the company?

Why Would You Need To Close Your Solvent Company?

The main reason you would need to close your solvent company is for tax purposes.

If you had a solvent company with assets of more than £25,000 then to obtain the capital gains tax benefits that arise it needs to be placed into Member Voluntary Liquidation and therefore closed. 

Alternatively, if the distribution is in respect of assets of £25,000 or less then in order to obtain such capital gains tax benefits the dissolution of the company must be within 2 years of the distribution. This is set out in Section 1030A of the Corporation Tax Act 2010.

However, that is a benefit of company closure for the owners to obtain a tax advantage; it is not an absolute need.

Why Would You Need To Close Your Insolvent Company?

A company that is insolvent will usually close if it cannot be turned around and establish itself again as a profitable trading company.

You would need to close a company with debts if you wanted as a director to take the responsible step of winding up a company that had no reasonable prospect of avoiding insolvent liquidation.

An advantage of doing this is that you would avoid suggestions of wrongful trading from the point the company went into liquidation. Companies that go into liquidation do not trade except in exceptional circumstances under the control of the liquidator.

In theory, you can cease trading and leave an insolvent company instead to be wound up by creditors and placed into Compulsory Liquidation or in some cases, it can be struck off. However, in either case, the effect will be the closure of the company in any event.

Making A Limited Company Dormant Instead Of Closing Down

You do not need to close your limited company if it is solvent even when it has ceased trading. You could make the company dormant by filing dormant accounts and you can simply tell HMRC that your company is dormant for corporation tax.

Voila, you would then have a dormant company. You would still need to file your annual accounts with Companies House and in addition, a confirmation statement (costing online £34) as failure to do so is a criminal offence. However, although this is an administrative task it is not particularly complicated and only has to be done annually. 

This will enable you to avoid the need to close your limited company, leaving it available for you to restart should you wish to do so.

Want To Close A Company?

To close a company see our comprehensive page how to close a limited company.