How much does it cost to close a limited company?

There are various reasons why you might want to close your limited company.

But it’s not simply a case of closing the doors, taking down your website, and letting your clients and customers know you’ll no longer be trading. There are also various legal steps you must take if you’ve decided to close your limited company.

The steps you need to take to close your limited company, and the costs involved, will depend if your company is solvent or insolvent. After all, the cost of closing a limited company in the UK can vary considerably depending on your circumstances.

Closing a solvent company

If your limited company is still able to pay its bills, it is classed as solvent. You can close a solvent company in one of two ways:

Member’s Voluntary Liquidation (MVL)

When applying for MVL, the directors will be required to sign a Declaration of Solvency, confirming that the company is solvent. All shareholders will then have to vote on the MVL, and at least 75% must be in favour for it to be passed.

If the company is liquidised, a licensed insolvency practitioner (IP) will be appointed to administer the process. Any assets will be sold off and, when the company is solvent, the proceeds will be distributed amongst any creditors, before being split between the shareholders.

Company dissolution

Company dissolution is typically the cheapest way to close a limited company. This involved being struck off the Companies House register.

Before dissolving the company, you must take a number of required steps, including ceasing trading for three months, closing down your payroll scheme, paying your creditors, and meeting your tax and National Insurance liabilities. You’ll also need to inform any creditors that the company is being dissolved.

Once you’ve completed the necessary steps, you’ll need to complete a DS01 form and send it to Companies House along with the required fee.

Closing an insolvent company

If your company can’t pay its bills, it is classed as insolvent. If this is the case, you must arrange the liquidation of your company. If you don’t pay your creditors, you may be forced into liquidation.

Creditors’ Voluntary Liquidation (CVL)

If your company is struggling with debt, this may be the best option. However, you must ensure you put the interests of your creditors ahead of the shareholders of you could be investigated by the Insolvency Service for misconduct or wrongful trading.

As soon as the company becomes insolvent, you must cease trading immediately to protect your creditors’ interests. Shareholders must then vote on a winding-up resolution, and 75% must be in favour for it to pass.

You will then present your creditors with a repayment proposal. If they vote to accept it, an insolvency practitioner will be appointed to take control of the company’s assets.

Compulsory Liquidation

Compulsory liquidation can be initiated by a director, the company itself, or the company’s creditors if they are owed £750 or more, by lodging a winding-up petition at court.

If a winding-up order is granted, the company will undergo compulsory liquidation.

How much does it cost to close a limited company?

The costs involved in closing a limited company vary depending on the way the company is closed. Of course, however you close the company, you will also need to pay any outstanding debts and wages.

To strike off a solvent company is typically the most affordable option, with a fee being paid to Companies House. An MVL will involve a liquidator’s fee, which will usually be anything from £1,500 + VAT, depending on the complexity of the process.

A CVL is usually the most costly way to close a company, and you will typically need to pay around £3,000 to £7,000. If these fees aren’t covered by the company’s assets, the directors may be held personally liable.

Do you have to pay tax if you close a limited company?

If you are looking to close a limited company which is no longer trading, it may be the case that you will have to pay Capital Gains Tax or Income Tax. Of course, this will all depend on how the company is closed and the profit that remains to be distributed to shareholders and directors.

What is the most tax efficient way of closing a limited company? 

Before closing a limited company, you should always opt for the most tax efficient way to close the company.

The vast majority of business owners looking to optimise tax efficiency choose to close a limited company through Members’ Voluntary Liquidation (MVL). This is viewed as being more tax efficient compared to other ways of closing down a company.

How long does it take to close a limited company?

As a general rule of thumb, you  can expect it to take a minimum of three months from application to dissolution when closing a limited company.

However, when closing a limited company, it’s not a case of one size fits all, and in complex cases, it can take a little longer, especially if there are a number of assets to dispose of.

Can you just walk away from a limited company?

Yes, it is possible for  directors to walk away from a limited company with debts, however, depending on how the company has been managed, this could result in a number of legal or financial consequences. There’s it is not recommended that business owners close a company in this manner.

 Why choose React Accountancy?

Here at React Accountancy, we can take care of the process, ensuring your limited company is closed in the most effective and efficient manner, and that all regulations are adhered to.   We can close your limited company for £350+VAT.

To find out more about how we can help you close your limited company, please get in touch.