In this blog, we will consider how to close a company online by voluntary strike off and a members’ voluntary liquidation (MVL). We will also explore the option of making a company dormant as an alternative to officially closing it.
How to close a company online by voluntary strike off
The main way to close a company online is to apply for voluntary strike off. This formally brings your business to an end and removes it from the register of companies. Section 1003 of the Companies Act 2006 provides this option to close a company: “On application by a company, the registrar of companies may strike the company’s name off the register.”
There are various conditions that must be met before applying to close your company online using the voluntary strike off procedure. In particular, the company cannot:
- have traded or sold off any stock in the last 3 months;
- have changed names in the last 3 months;
- be threatened with liquidation; or
- have any agreements with creditors.
If your company meets these criteria, it can then take steps to officially bring its operations to an end, including:
- Dealing with any remaining tax and debt liabilities.
- Making employees redundant, paying final wages, and informing HMRC that the company is no longer an employer.
- Distributing business assets amongst shareholders. It may be necessary to pay Capital Gains Tax on any assets taken out of the company before it’s struck off.
The final statutory accounts and a tax return can then be submitted to HMRC online. When closing the company, it is not necessary to file final accounts with Companies House, but this can also be done separately online.
Once all of these steps have been completed, the company can proceed with closing the company online through voluntary strike off. More than half of the directors need to sign the application before it can be submitted.
Once the application to strike off and dissolve a company has been submitted, a copy of the application must be sent within 7 days to anyone who could be affected, including:
- managers or trustees of any employee pension fund; and
- any directors who did not sign the application form.
The request for the company to be struck off will be published as a notice in the local Gazette for two months. If no one objects, it will then be officially struck off the register of companies.
A further notice will then be published in The Gazette to confirm that the company has been successfully dissolved.
Can I close a company online through liquidation?
If the conditions for voluntary strike off are not met, an alternative way to close a company is through liquidation. This is also known as winding up a company.
Members’ voluntary liquidation (MVL) is a procedure used to wind up a solvent company, where the owner:
- wants to retire;
- wants to step down from the family business and nobody else wants to run it; or
- does not want to run the business anymore.
It involves making a declaration of solvency, passing a resolution for voluntary winding up, and appointing an authorised insolvency practitioner as a liquidator, who will take charge of winding up the company. An insolvency practitioner can be found online to close the company.
The process of MVL is more expensive than voluntary strike off, as a liquidator needs to be appointed. However, if the amount of retained profits to be distributed amongst shareholders exceeds £25,000, MVL will generally offer a more tax-efficient approach.
Other forms of liquidation can be used to close a company where it is insolvent:
Should I make my company dormant instead of closing it online?
Making a company dormant essentially mothballs the business without having it struck off the register. If you are considering trading again in the future, it may be a better idea to make your company dormant rather than closing it entirely. Although there is a small amount of administration required for a dormant company, this is minimal.
The definitions of a dormant company are slightly different for HMRC and Companies House. The HMRC definition of a dormant company is:
- A company that has stopped trading and has no other income, such as investments;
- A new limited company that hasn’t started trading yet;
- An unincorporated club or association run for the benefit of its members, and owes less than £100 Corporation Tax; or
- A flat management company.
The Companies House definition of dormancy is a company that has had no significant accounting transactions during the accounting period. So it should not have generated income or earned bank interest.
Since a dormant company is not carrying out any business activity or receiving an income, it is inactive for Corporation Tax purposes as far as HMRC is concerned. As such, dormant companies do not need to file tax returns with HMRC.
However, they are still required to file an annual confirmation statement and annual statutory accounts with Companies House. Full accounts are not required and a simplified version of accounts, known as dormant company accounts, is acceptable.
It is important to remember that a dormant company still appears on the register of companies.