- Wednesday, 06 November 2013 09:19
- Written by Amy Hinchliffe
Returning to permiedom; retiring to the scenic landscape of the Cotswolds; or taking the trip to Australia you have wanted since you were 18; there are numerous reasons that could incline contractors to part with their limited companies.
Whether you are temporarily halting your business’ activity, or altogether ending the contracting era, there are a number of options available to a contractor terminating their practice. It is advisable that professional advice is sought in order to make a completely informed decision regarding your business, but here is an overview of a few options.
If you are certain you have no desire to continue running your business, you could choose to strike it off. Before applying to strike off your limited company (which only costs £10), you must make sure you’ve closed it down legally.
In order to ensure this, you must send a copy of the application to strike off within 7 days to anyone who could be affected, for example shareholders, employees, trustees, etc.
Employees – in the unlikely event you have them - must be paid what they are owed and redundancy must be conducted in the right way else you could face burdening consequences.
You’ll also need to tell HMRC that your company has stopped trading and will soon be dissolved. Once you’ve paid the final balance of PAYE and NI, you can ask them to close down the company’s payroll scheme.
Before the company is struck off, you should ensure the business assets are shared among the shareholders, and final statutory accounts and a Company Tax Returns are sent to HMRC (you must keep business documents for 6 years after the end of the relevant accounting period).
To apply to strike off your limited company, you must send Companies House form DS01, which should be signed by a majority of the company’s directors.
Striking off a company is the simplest and cheapest way to dissolve a company you no longer require, and the process is fairly quick.
If your intention is to just take a break from the company – go to Australia, take an extended holiday, take any break with the intention of returning - it could be beneficial for you to leave your company open, but not have any transactions flowing through it. You can do this by making your company dormant.
Once a company becomes dormant, HMRC need to be informed in writing as soon as possible.
HMRC then send the company a ‘Notice to deliver a Corporation Tax return’ for the period up to the date the company becomes dormant. From the date the company becomes dormant HMRC stop treating the company as active and the company does not have to file C.T. returns.
This option is available to you if your company is solvent – meaning it can pay its debts. You may choose this option if you wish to retire (Cotswolds, perhaps?); you want to step down from a family business and no one else wishes to run it; or if the business has run its course, etc.
“You could stand to make a sizable profit at the same time as walking away from your company.”
To do this, you must fill in the declaration of a solvency form 4.70 from a legal stationer. It must also be signed by the majority of directors. Once the resolution has been passed, the signed form must be sent to Companies House within 15 days.
An appointment of an authorised insolvency practitioner as a liquidator who will take charge of winding up the company follows this. However, it is important to note that it is not a necessity to formally appoint a liquidator if distributions on winding up are not greater than £25,000 and then, only if capital treatment is being sought is there a need to go down the route of a formal winding up.
Once the liquidator has been appointed, there is very little work for you to do as they take care of everything for you.
Whilst this option has a potential negative in that you have to appoint a Licensed Insolvency Practitioner (IP), who may charge, it is also possible to benefit from a substantial tax saving.
By selling your business, you could stand to make a sizable profit at the same time as walking away from your company.
In this, someone else basically becomes responsible for the running of your company as soon as you sell your shares and resign as a director.
You wouldn’t be able to sell your shares on the stock market as a private company.
If a contractor was fortunate enough to find a buyer, then valuing the shares for a one man PSC should be relatively straightforward, as PSCs are very simple in their structure and methods of share valuation are narrower.
Obviously the nature of contracting makes this option highly unlikely, but it’s not beyond the realms of possibility.
So as you can see, these are a few viable options available to contractors, whether you wish to finish your business altogether or just press pause for a while.
As aforementioned, this list is by no means exhaustive, so please seek more information from a specialist if you are considering taking a break, retiring or returning to employment.Comments