Deciding to close your business is a significant step and one that can be fraught with complexities. At The Solve Co, we understand that this process can be challenging, whether you’re retiring or embarking on a new adventure. That’s why we’ve put together this step-by-step guide to help you navigate the intricacies of closing a small business in the UK.
Preparing for Closure
Before taking any action, it’s essential to strategize how and when you’ll close your business. This planning phase is crucial, especially if multiple stakeholders are involved. Start by outlining a timeline that includes tasks like contacting relevant parties and completing necessary paperwork. This can include:
Getting in touch with your accountant
Collecting outstanding payments
Closing customer accounts
Contacting suppliers
Notifying your landlord
Addressing insurance matters
Consulting with staff
Contacting your business bank
Remember that this list may vary depending on your specific business operations. Additionally, you’ll need to account for any ongoing expenses, such as rent or utilities, until you cease trading to ensure you have sufficient funds to cover these bills.
Your Duties as an Employer
If you have employees, you have additional responsibilities as an employer, particularly when it comes to closing your business. Consultation with employees regarding redundancies is a crucial step. Keep in mind that if you’re considering 20 or more redundancies within a 90-day period, both collective and individual consultations are required.
Your duties include:
Notifying HMRC of the cessation of employment
Settling final wages, outstanding PAYE, and National Insurance contributions
Issuing P45s to employees
Submitting final payroll reports to HMRC
Closing your payroll scheme
Closing a Limited Company
When closing a limited company, you must obtain agreement from the appropriate number of directors and shareholders before proceeding with an exit strategy. There are two primary scenarios to consider: closing a solvent company and closing an insolvent company.
For a solvent company:
Apply to have the company struck off the Companies Register, which costs £10, under certain conditions.
Send copies of your application to relevant parties within seven days.
For an insolvent company:
You are unlikely to be able to get your company struck off the register, as creditors need to be notified and are likely to object.
Consider a Creditors’ Voluntary Liquidation (CVL) if the directors are unable to provide a statutory declaration of solvency.
We recommend seeking detailed guidance on dissolution, liquidation, and insolvency from the government’s website and our factsheet on Corporate Insolvency.
Announcing the Closure
Before proceeding, you must inform all relevant parties about your business closure. This includes notifying HMRC if you’re no longer trading, informing employees, discussing insurance policies, and addressing obligations under the Construction Industry Scheme (CIS).
Paying Taxes
When initiating the closure process, a new accounting period begins, lasting 12 months. You must pay Corporation Tax on taxable profits during this period, even when selling assets to cover debts or generate trading income.
Ensure you:
Submit your final statutory accounts and company tax return
Pay your final tax bill, encompassing corporation tax, VAT, and National Insurance contributions
Cancel your VAT registration
Capital Gains Tax (CGT)
If you sell assets that have appreciated in value, CGT may apply. Business assets are considered chargeable assets, so you might have CGT obligations, depending on your business’s profit. Record your gains on your self-assessment tax return and keep these records for five years.
Business Asset Disposal Relief (formerly Entrepreneur’s Relief)
This relief may reduce your CGT liability, applying a lower rate of 10%. Eligibility requires two years of business ownership, with a current lifetime limit of £1 million.
Once all payments are settled, you can close your business bank account. Any remaining assets or funds will go to the government after dissolution.
Stopping Self-Employment as a Sole Trader
If you are a sole trader, follow these steps:
Notify HMRC by the end of the tax year (5 April) that you’ve ceased trading.
Submit your final self-assessment tax return before the deadline, detailing income, expenses, capital allowances, Capital Gains Tax, and profit or loss.
Pay your final tax bill, encompassing tax, VAT, and National Insurance.
Cancel your VAT registration if necessary.
Remember, as a sole trader, you are personally responsible for your business debts.
Ending a Partnership
For partnership closure:
Inform HMRC of your business closure and cessation of trading.
Submit your final self-assessment tax return before the deadline, detailing income, expenses, capital allowances, Capital Gains Tax, and profit or loss.
Additionally, the nominated partner must submit a final partnership tax return.
Further guidance on dissolving partnerships is available on the FSB Legal Hub.
Record Keeping
Lastly, keep in mind that you must retain business documents for seven years, including bank statements, invoices, and receipts. Copies of employer’s liability insurance should be kept for 40 years.
Closing your business is a significant endeavour, and The Solve Co is here to support you through every step of the process. Our expert team can provide guidance and assistance tailored to your unique circumstances. Remember, you’re not alone in this journey; we’re here to help you achieve a smooth and successful business closure.
