This article deals with the basics of how to stop trading a Limited company. In another article, we explain going to the final stage in terms of actually how to close a Limited company.
In order to stop trading a company needs to notify people and other businesses that it has ceased to trade. A company typically has many administrative requirements that need to be resolved to enable you to wind down the company and enable it to stop trading.
In order to start the process of cessation of trading a company will need to contact all of its existing customers and suppliers to notify them of the intention to stop trading.
If your company has obligations under contracts with customers and suppliers that it needs to honour, then this could affect the company’s ability to stop trading and close down without obtaining professional advice.
If the company attempts to avoid those obligations and contracts then it could find itself in breach of contract and it could be sued for damages. If the company were to be sued, then it could find itself with liabilities and debts. As a result, this could mean that it is insolvent.
If a company is insolvent then it may not be able to close down without either going into Creditors Voluntary Liquidation or Compulsory Liquidation.
To avoid having to go into Liquidation if there are obligations and contracts that need to be honoured, you may be able to negotiate with the relevant customers or suppliers to agree to an orderly variation to these contracts to bring them to a halt. A customer or supplier that recognises that you do not wish to continue trading is likely to want to put in place new agreements with new trading partners. You can help and assist them with such a process by introducing them to potential new trading partners. You may find this oils the wheels enabling you to exist existing contracts in a mutually agreeable way.
The assets in the company are property of the company and need to be sold and realised for cash which can be distributed to the shareholders, subject to settling the company’s liabilities. Alternatively, the assets could be distributed in specie subject to its liabilities being satisfactorily provided for.
The company’s bank account needs to be closed with all its liabilities settled. Once that has been arranged then any residual funds will need to be distributed with appropriate provision for any HMRC tax liabilities.
If you employ people then they will have a contract of employment with the company. If the company stops trading and they have been employed by the company for two years or more then they will be entitled to redundancy.
You should check the terms of an employee’s contract of employment to see what notice periods they are entitled to as this could impact on the amount of any liability that the company has.
It is a requirement for most companies to auto-enrol their employees in a workplace pension scheme subject to certain thresholds being met. If your company has enrolled some or all of its employees in such a pension scheme and the company is stopping trading, then you will need to notify the pension provider accordingly.
If the company has a PAYE Scheme then you will need to contact the relevant PAYE office at HMRC and inform them of the intended closure of the company and file any required returns in relation to Benefits In Kind and Class 1A National Insurance Contributions.
If the company is registered for VAT then the company will need to notify the company’s VAT office at HMRC and prepare a final VAT return, paying over any remaining VAT liability that arises for taxable supplies up to the point of cessation of trading. It is quite possible that the company will be entitled to a VAT refund if the company has incurred expenses after it ceased to raises sales invoices and a new VAT quarter or period has resulted.
This process of closing your limited company will involve formal deregistration for VAT. You can etiher do this online at the HMRC Cancel Your Registration Page or by filing what is known as a VAT 7 Form by post.
Each year a company has to file a Corporation Tax Return (CT600). You will need to contact HMRC to inform them of the closure and submit a final CT600 for the period up to the final date of trading and pay over any remaining corporation tax liability.
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