Closing a trading company is harder to do than one that has already ceased to trade because there is more work to do and relationships to administer.
When you are thinking about how to close a limited company, unlike a company that has ceased trading you have a moving target because there are still transactions in process, accounts that need filing, tax returns that need to be filled and employees that need to be paid.
If you want to close a trading company then at some point you will need to close down the bank account but this is the very last thing to do because until you have paid every supplier and creditor you will need a company banking facility. So the order in which you set about closing down a trading company is very important.
Examine Customer Contracts Before Closing A Trading Company
Closing a trading company cannot happen without stopping work for customers. However in order to do that you will need to examine the customer contracts to consider the rights you have to terminate the contracts and stop the supply of goods and services. If you are contractually obliged to provide goods and services and cease trading without agreement you could find yourself being hit with a breach of contract damages claim.
Terminating Contacts With Suppliers And Employees
Until you have agreed on the cessation of trade with customers you cannot realistically address the conclusion of closing trading with your suppliers and employees. The reason for this is that you need your suppliers and employees in order to support the work you would be doing for your customers.
However, yet again you will need to review your contracts so that you can calculate any additional costs arising from termination of those relationships. Where employees are concerned their contracts may have provisions that need to be addressed, including but not limited to redundancy claims which can be expensive.
Closing A Trading Company’s Administration
Once you have done the hard part of being in a position to finalise your last sales and purchaser orders to eliminate your day to day trading you are now much closer to being able to close down the trading company you have left.
You should now be in a position to raise your final sales invoices and request final purchase invoices to then collect any outstanding monies you are owed from customers and make your final payments to suppliers and let the employees go.
Once this has been done you can sell any assets and tools of trade you no longer need and convert them into cash which can be banked.
Final Accounts And Tax Returns For Trading Ceasing
At this point, you are nearly at the point in which you can prepare your final set of accounts (often known as cessation accounts) but you need to eliminate any remaining transactions that may have tax implications such as:
- Ceasing interest on your bank account.
- Obtaining the accountant’s final invoice and paying it.
- Calculation of your final corporation tax bill.
Now all remaining trading features need to be closed down with HM Revenue and Customs. Typically you would need to request HMRC close down your payroll scheme as you stop being an employer, deregister and cancel your registration for VAT purposes using a VAT 7 form and notify HMRC of your intention to cease trading in the near future. You may also need to notify any regulators with whom you are registered to ensure they are aware of the closure of the trading business.
Closing down a company’s HMRC tax affairs might not be straightforward so it is always worth taking professional advice.
Once you have done this as you are shutting down a solvent company you will be in a position to draw out of the company any remaining cash balances in the bank account and either strike off the company using the DS01 or if it is considered more tax efficient to appoint a liquidator to undertake a members voluntary liquidation.
If however, you are shutting down an insolvent limited company then its tax affairs will be differently addressed with HMRC lodging a proof of debt in the Liquidation for the Liquidator to adjudicate.
