Closing down your small business can be stressful. Watching something you’ve built from the ground up shutting its doors is never a good thing, but by following the right rules and procedures, you can at least make the closing process easier.
In this guide, we will go through the steps involved in voluntarily striking your business from the register. This assumes your company is solvent, however, it may still be relevant to insolvent companies and those struggling to pay their bills.
Closing down a business checklist UK
Although closing down a business is never a good thing, it makes it easier and less stressful if you have clear information on how to do so. Please note that the below checklist is more relevant to business owners, shareholders or company directors who have decided to voluntarily close down a business. It’s not necessarily relevant to those going through a forced closure, such as insolvency.
- Check your business is eligible
Before going through a voluntary closure to get your company stricken off the Companies Register, you need to make sure it’s eligible to do so. There are four considerations you need to meet to do so: a. Your business hasn’t traded in the past three months b. Your business hasn’t changed its name in the past three months c. Your business isn’t threatened by liquidation d. Your business has no agreements with creditors
If your business meets these four requirements set out by Companies House, you’re able to proceed with a voluntary closing. If it doesn’t, you will have to go through with a liquidation.
- Submit an application to Companies House
You need to submit an application to Companies House to begin the process. This is by filling out and sending off Form DS01, which must be signed by the majority of directors or named business owners.
To fill out the form and process it, you will need to pay £10. Make sure you don’t use a cheque from a bank account that belongs to the company that’s about to be closed, however.
As another approach, you could also consider a members’ voluntary liquidation, which is when your company is solvent but enters liquidation. For example, you may be looking to retire or just don’t want to run the business anymore.
- Notify shareholders and employees
All interested parties who would be interested must be contacted. Importantly, you must tell them within 7 days of submitting an application for striking the company off the register. Parties you must tell, include: ● Shareholders ● Directors ● Employees ● Creditors ● Managers or trustees of employee pension fund
If you don't tell the right people that the company is closing down, you can face a fine and possibly be prosecuted.
- Sort out any business assets
If you're closing a business, you need to sort out what you will do with all of your business assets. This will be more complicated depending on the nature of your business, but you can go about it in two ways.
Firstly, you can share the business assets between shareholders before the company is struck off the register. Or, you could enter voluntary liquidation. This will mean you liquidate or sell company assets before closing.
Voluntary liquidation could be done by quickly selling off assets, or possibly using an Inventory Liquidator, which are companies specialising in purchasing a company’s excess inventory.
If your company was insolvent at the start of the process, you won’t have an option as you will have to go through with a forced liquidation.
- Tell HMRC you’re no longer an employer
As your business is closing, you will no longer be employing staff. You should tell HMRC as soon as possible that you won’t be employing any more staff to halt PAYE or national insurance payments.
- Deal with employees
You must continue to follow the rules regarding staff. Among paying their final wages, you need to follow the rules if you make forced redundancies.
- Business bank accounts
Before the business closes down, you should also ensure that you’ve moved funds from company bank accounts. If you don’t do this before the company is struck off the register, all remaining funds and assets will pass to the Crown.
Closing a sole trader business UK
Closing a sole trader business in the UK can be very simple so long as you follow the rules and procedures. There is slightly more risk involved with sole trader businesses, as you will typically have the legal and financial responsibility for the business.
The first thing to do is to tell HMRC you are stopping being self-employed. You will then need to sort your business’s accounts and send a final tax return before the deadline, which includes working out your trading income or profit and loss, as well as seeing if you owe Capital Gains Tax. You may be eligible for tax relief, so it’s always worth double-checking just in case.
Just like closing down a limited company, tell HMRC you’re stopping employing people and pay their final wages. You should also cancel your VAT registration as soon as you can.
Closing a business bank account
To close a business bank account, you need to ensure you have a nil balance. This means you have no positive balance on the account, as well as not being in your overdraft. If your balance is positive, you must withdraw the balance to another account, or, deposit the exact amount if you’re in an overdraft to make the balance nil.
You should also ensure there is no business loan tied to your business and the business account you are looking to close. If there is, your closure request is sure to be rejected.
When you go to close down your account, which is often done at a physical bank branch, all named account users will need to be present. They will also need to bring all the necessary documents with them, which can change slightly depending on the individual bank.
How much does it cost to close a business
Depending on how you decide to close your business, the cost can vary. This is because whether your company is solvent (in the green without debts) or insolvent (meaning it can’t pay its bills) changes your approach.
Above, we’ve talked about voluntarily closing a business by striking the company from the register. For this approach, the minimum cost is £10 which is to submit the form to Companies House. Going with a third-party expert to help you close down your business is another option, but this will cost extra.
However, if you have stock and choose to opt for voluntary liquidation, you may choose to go with a liquidator. Here, there may be fees associated with bringing in a third-party liquidator, and you also need to take into account the lost revenue from stock you may have sitting around.
If your company is insolvent, meaning it cannot pay its bills, you will probably need to opt for forced liquidation. This is where you liquidate all of your assets to help pay back your creditors and repay your debts. It may be a good idea to go with a specialist company liquidator as it can get complicated. For small limited companies, the fees these companies charge can be several thousands of pounds.
How to know when to close a business
The biggest sign that it is time to close a business is financial performance. If your business is only a few years old and it still hasn’t turned a profit yet, it may be a good time to cut your losses and close the business. While this sounds like a quitter mentality, if you have a good feeling that things won’t get better soon, it can be a losing battle.
If you have a longer-term business, your financial performance might be slowly slipping, or your market presence is declining. Before things get bad, you might feel that closing up shop is a sensible way to prevent significant losses down the line.
Especially for small businesses, business finances and personal finances becoming inseparable is a clear sign that it’s time to close a business. You shouldn’t have to dig into your own pocket to finance your limited company or keep it afloat, and it will likely only get worse.