Closing a limited company without paying tax involves following the proper legal and financial procedures to ensure that all outstanding debts and obligations are settled and that the company’s assets are distributed appropriately.
This may include paying off any outstanding loans, settling accounts with creditors and suppliers, and distributing any remaining assets to shareholders.
It is important to work with a chartered accountant to ensure that the process is handled properly and that all tax liabilities are properly addressed.
It may be possible to liquidate the company’s assets and use the proceeds to pay off debts and distribute the remaining funds to shareholders without incurring additional tax liabilities.
It is important to carefully consider all options and consult with a financial professional to determine the most appropriate course of action.
What’s The Most Tax-Efficient Way to Close a Limited Company Without Paying Tax?
There are a number of tax efficient ways to close a limited company without paying to much tax, these are the most popular:
What is a Voluntary Strike Off?
A Voluntary Company Strike Off is different from liquidation and is also known as dissolution. It happens in entirely voluntary circumstances and is a common way of closing a limited company.
To qualify, the company cannot have traded, changed its name, sold assets, or engaged in any activity unless it is for the purpose of striking off in the previous three months.
A company cannot be wound up if it is currently in administration, subject to a scheme of arrangement or CVA, or has a receiver or manager appointed over its property.
The process broadly follows these steps:
• A board meeting is held to pass a resolution in writing to apply to close the company.
• Directors sign the application.
• All employees and creditors must be notified of the application.
• An application is then made using a DS01 form.
A notice will be published giving interested parties three months’ notice that the company intends to be struck off. If there are no objections during this time, the business will be struck off.
Companies must follow several other steps or at least consider, detailed in our guide to closing a company here.
Voluntary Strike Offs are the standard and most efficient method business owners usually use when closing a company. However, they still tend to be complex affairs that require expert knowledge to navigate. We can supply that knowledge and reassurance.
What is a Members Voluntary Liquidation?
A Members Voluntary Liquidation (MVL) is a tax-efficient procedure that enables shareholders to appoint a liquidator who will formally close down a solvent company (i.e., one that can afford to pay all its debts).
An MVL is regarded as one of the most common methods for directors and shareholders to realise a company’s assets, including buildings, vehicles, cash, etc.
The directors themselves will start the process of a company’s liquidation by contacting an Insolvency Practitioner. The MVL process should be implemented when a solvent company needs to be wound up if it has come to the end of its useful life.
It’s always worth checking with your accountant first, but, in most cases – and with the new provisions of entrepreneur’s relief – it is more tax-efficient to take money out of the company via an MVL rather than taking it all out as a special dividend.
An MVL is not appropriate if the company is deemed insolvent (i.e., one that cannot afford to pay all its debts).
Closing an insolvent company
When a company is insolvent, it means that it is unable to pay its debts. This can be a very difficult situation for the company’s owners, employees, and creditors. In many cases, the best course of action is to close the company. This can be a difficult decision, but it is often the best way to protect the interests of all parties involved. Once the decision has been made to close the company, there are a number of steps that must be taken.
The first step is to notify the company’s creditors. The creditors will then have an opportunity to file claims against the company. Once all claims have been filed, the company’s assets will be sold off to pay debts. Any remaining funds will be distributed to shareholders. After the company has been closed, the owners and employees will need to find new jobs.
The creditors will also need to find new customers. While closing an insolvent company can be difficult, it is often the best way to protect all parties involved.
Read more: liquidating a company
F.A.Q’s
You can close a limited company without paying tax – but only up to the limit of your annual tax-free allowance. So how can you close the business in the most tax-efficient manner? The two main methods of closing down a solvent limited company are voluntary strike off and Members' Voluntary Liquidation (MVL).
You have to pay tax if you want to close a company. Closing a limited company which is no longer trading, you may have to pay Capital Gains Tax or Income Tax, depending on how the company is closed and how much profit is available to distribute to shareholders and directors. Can I close limited company without paying tax?
Do I have to pay tax if I close my company?
Conclusion
Closing a limited company without paying tax is possible if the company has no outstanding tax liabilities and has gone through the proper dissolution process. This may involve liquidating any remaining assets, paying off any debts, and properly distributing any remaining profits to shareholders.
It is important to carefully follow all necessary steps and ensure that all tax obligations have been fulfilled in order to avoid any potential legal or financial consequences.
Read more: How to liquidate a limited company
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.