How to close your limited company

How to close your limited company

05/03/2022 - 14:16

Following changes to off-payroll working rules and the end of a 12-month ‘light-touch’ enforcement period, many contractors are finding it increasingly difficult to operate ‘outside IR35’ through a limited company.

Some contractors are now at risk of being permanently locked into high tax, low benefit ‘inside IR35’ arrangements.

Making the switch

There are alternatives to working through a limited company.

Some contractors have decided enough is enough and are heading back into full-time employment. Others that want to continue working flexibly, but want to avoid IR35, are turning to umbrella companies.

Whatever you decide to do instead, you should make sure you close your limited company so you don’t have to worry about any of the administrative headaches that come with running it.

For most solvent companies, the best way to close down will be using a Members Voluntary Liquidation.

A Members Voluntary Liquidation is a tax efficient way of closing a limited company. Using a Members Voluntary Liquidation allows company owners to withdraw any leftover tax as capital, which is subject to a lower rate of tax.

When a company’s assets exceed £25,000, capital distributions can only be made by a liquidator. Some owners may also benefit from additional tax advantages like Entrepreneur’s Relief, which gives you a 10% marginal rate on distributions.

Member’s Voluntary Liquidation Process

Member’s Voluntary Liquidations follow a specific process.

1. Professional advice

Before you do anything else it’s worth seeking professional advice to make sure a Member’s Voluntary Liquidation is the correct course of action for individual and company. Most insolvency practitioners will offer a free initial consultation to help you make up your mind.

2. Formal instruction

The next step is formally appointing an insolvency practitioner to carry out your Member’s Voluntary Liquidation. Board members will need to meet to decide when and how a resolution will take place to begin the process.

3. Declaring solvency

Acting on behalf of the company, directors must formally declare that the company is solvent and can afford to repay all debts. They must sign a legal document which is backed up by the company’s balance sheet.

4. Voting

A company’s shareholders need to vote on whether to pursue a Member’s Voluntary Liquidation. The resolution will pass if more than three-quarters of members (based on shares) are in favour of it. This will generally be a formality for personal service companies with a few shareholders.

5. Liquidation and realising assets

When a resolution has passed, the liquidator will carry out all of their legal obligations like dealing with any creditors and the tax authorities. Once this is done, the liquidator will begin distributing funds to shareholders.

For more information about a pursuing a Member’s Voluntary Liquidation, speak to our in-house insolvency team today. Call: 0800 611 8888 or visit our dedicated website at www.umbrella.UK