If your company stops trading, either by choice or as a result of problems it is facing, it will be considered ‘inactive’ or ‘dormant’. You should inform HMRC that your company is no longer trading as soon as you possibly can for corporation tax purposes. You do not have to tell Companies House until your annual accounts are due. At this point you should submit your accounts as usual even if this simply shows an empty balance sheet. Your accountant will be able to compile dormant company accounts on your behalf.
Keeping a company dormant
Your next steps depend on the financial status of the company. If your company has no debts, then you can continue to keep your company dormant leaving you able to recommence trading at a later date if you wish. Keeping your company registered also helps to protect your company name as this prevents any other business from using it themselves. If you plan on making your company dormant, you need to make Companies House aware of this and continue to file annual accounts and submit returns.
If at any stage you want to begin trading through the company again, HMRC must be notified within 3 months of you undertaking a business activity. Companies House do not need to be informed directly as this information will be transmitted to them once you file your annual accounts. If your turnover exceeds £85,000 you are also required to register for VAT.
Closing down a company
If your company has ceased trading due to financial difficulties and the business is in debt, you need to look at alternative ways of closing down your company. Simply stopping trading does not end the life of your company, nor does this take care of any outstanding liabilities it may have.
Instead, you should make it a priority to seek expert business advice from a licensed professional. An insolvency practitioner will be able to talk you through the options available, and work alongside you to formulate a workable plan going forwards.
Depending on your ambitions for the company you could look at ways of restructuring your business’s liabilities in order to allow the business to return to profitability once trade resumes. This may involve negotiating with HMRC to implement a Time to Pay (TTP) agreement should you have fallen behind on your tax obligations; a Company Voluntary Arrangement (CVA) may be preferable should you be juggling a number of creditors.
However, the business may be beyond recovery, or you may have reached the conclusion yourself that you would rather close the company down for good. If this is the case, you will need to consider placing your company into liquidation. This is done through a Creditors’ Voluntary Liquidation (CVL) which must be administered by a licensed insolvency practitioner. During a CVL, all assets belonging to the company will be sold (‘liquidated’) and this money used to pay outstanding creditors following a designated hierarchy.
If you are considering stopping trading through your limited company, your accountant will be able to provide you with the help and advice you need to ensure you remain compliant of your obligations as company director. If you are looking for an accountant to help with your business, Handpicked Accountants can help match you up with a trusted professional in your local area. Search our database, or call our expert advisers today on 0800 063 9258 for a personalised recommendation.