The cost of closing a limited company in the UK can vary depending on the circumstances. If the company has no debts and has not traded for more than three months, the process can be straightforward and relatively inexpensive.
The company can apply for a voluntary strike off, which costs £10, and involves filing the relevant paperwork with Companies House.
However, if the company has debts, it will need to go through a formal insolvency procedure, such as liquidation or administration, which can be more complex and costly.
In these cases, the cost to close a limited company can range from a few thousand pounds to tens of thousands of pounds, depending on the level of debt and the complexity of the company’s affairs
What are the Costs of Closing a Limited Company?
Closing a limited company can be a complex process that involves a number of costs. The costs of closing a limited company may include professional fees for an accountant, insolvency practitioner or solicitor to help with the process, as well as fees associated with filing paperwork with government agencies.
Other costs may include paying off any outstanding debts, such as loans or taxes, as well as settling any outstanding contracts with suppliers or clients. Additionally, there may be costs associated with liquidating assets or transferring ownership of any remaining assets.
It’s important to carefully consider these costs and plan for them accordingly when closing a limited company to ensure a smooth and successful process.
Likely costs of a Voluntary Liquidation
A creditors’ voluntary liquidation, often known as a CVL, is a legal insolvency procedure used to liquidate a limited business that is unable to pay its expenses. Despite what the term suggests, a creditors’ voluntary liquidation is a process begun by the company directors. To commence the winding-up process, they will summon a general meeting of shareholders. Because the liquidator is paid before any other creditors, the sale of corporate assets may cover the liquidation’s expenses.
A CVL is typically the most expensive way to liquidate a business, with the liquidator’s charge ranging from £3,000 to £6,000 depending on the intricacy of the case. If the company’s assets do not meet the fees, the directors may be held personally accountable. Nonetheless, it’s worth noting that if you use this type of limited company closure, you may be eligible for director’s redundancy pay. This amounts to about £12,000 on average and would more than pay the cost of liquidation.
Compulsory Liquidation
If your firm is unable to pay its payments and you have not reached a deal with your creditors, your creditors may file a winding-up petition against your company. If the debt is not paid, the court can issue a winding-up order, which will force your firm to close down through a procedure known as compulsory liquidation.
The cost: of forcing a corporation into compulsory liquidation is high. The winding-up petition costs creditors between £500 and £800, plus a court deposit of roughly £1,600 and a filing fee of £280. These expenses will be borne first by the petitioning creditor, who hopes to recoup them from the proceeds of the sale of the company’s assets. If there are assets to be recovered, a liquidator must also be appointed. Their price will range between £1,500 and £3,000, depending on the complexity of the case.
What are the Costs of Closing a Limited Company Without Debts?
If you want to close a solvent limited corporation, you have two options. The worth of the company’s physical assets and cash in the business will often determine the best strategy for you.
Company Dissolution
The quickest and least expensive way to close a solvent limited company is by a process known as company dissolution, often known as voluntary strike off. This strategy is best suited for businesses with limited physical assets or those have never produced a lot of money. It’s also ideal for businesses that are no longer in operation and are unlikely to be used again.
The cost: for striking off is currently set at £10. This, along with the completed form DS01, should be delivered to Companies House.
Members’ Voluntary Liquidation (MVL)
A member’s voluntary liquidation (MVL) is a formal method for closing a solvent limited corporation. To realise the company’s assets, repay any creditors, and distribute the money among the owners, a licenced insolvency practitioner must be appointed.
Members’ voluntary liquidations start at roughly £1,500 for small companies with few assets and grow to £3,000 or more when a larger number of more valuable assets are involved.
Entrepreneurs Relief
When evaluating the cost of closing a solvent limited business, you need consider more than simply the cost of the closure process. The amount of tax payable on the assets you sell will have a significant impact on the amount of money you receive. Company dissolution is by far the cheapest option to close a solvent limited business, costing only £10.
However, Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, is available on assets realised as a result of a member’s voluntary liquidation. This might dramatically minimise the tax required on retained profits and gains from the sale of firm assets.
Frequently Asked Questions
It is possible to close a limited company for free by applying for a voluntary strike off, provided that the company has no debts and has not traded for more than three months. However, there may be other costs associated with closing a limited company, such as paying off outstanding debts, legal fees, and Companies House fees for filing the relevant paperwork.
The cost of hiring an insolvency practitioner to close a limited company can vary depending on the complexity of the case. It can range from several thousand pounds to tens of thousands of pounds.
The best way to minimize the costs of closing a limited company is to seek professional advice from a qualified accountant or insolvency practitioner. They can help you explore all the available options and choose the most cost-effective solution for your business. By taking proactive steps to manage your debts and liabilities, you can minimize the costs of closing your limited company and ensure that the process is handled efficiently and effectively. Can a limited company be closed for free?
How much does it cost to hire an insolvency practitioner to close a limited company?
What is the best way to minimise the costs of closing a limited company?
Conclusion
In conclusion, closing a limited company can be a complex and expensive process, especially if the company has outstanding debts or a significant number of assets. The costs associated with closing a company can include professional fees, legal fees, tax obligations, and filing fees.
Business owners should carefully consider their options and plan for these costs accordingly to ensure a successful and smooth closure process.
It is recommended to seek professional advice from accountants, insolvency practitioners, or solicitors to guide you through the process and help you make informed decisions that are in the best interests of your company and its stakeholders.
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.