How to close/shut down a limited company?

Do you run a Limited Company? There may be a time when you no longer want to run as a limited company. You might be to getting into other ventures, getting back as a full-time employee, or many other reasons. Whatever reasons, it is important to close your limited company.

The two main ways of ending a company in the UK depend on whether there is sufficient money in the company for it to be able to pay all of its debts. Shortly after it stops trading, these may include:

• Corporation tax for the final period
• VAT for the final period
• Outstanding PAYE and National Insurance on payrolls
• Final accountancy fees
• Any remaining amounts owed to trade suppliers
• Bank loans or overdrafts
• HP or lease agreements, or any other ongoing commitments
• Money owed to directors or shareholders.

If the company cannot pay its debts, it will ultimately enter into one of the different types of insolvency proceedings. This usually involves an insolvency practitioner either taking over the company in order to keep it running while its finances can be restructured, or selling off the company assets in an attempt to raise money to pay the creditors. The conduct of the directors may also be investigated. More information is available on the Insolvency Service website.

Assuming that the company is not troubled by any such debt issues, there is a simplified way of closing it down. In a typical case, the steps would be as follows:

The company should carry on no further business, and undertake no further transactions, except those which are necessary to wind it up.

Anyone that the company owes money to should be paid, otherwise they may object to the company being dissolved in this way. The company bank account should not be emptied or closed until all company debts have been paid. Any loans to or from any company directors or shareholders should be repaid.

If any vehicles or equipment have been bought on any form of hire purchase, leasing or finance agreement, then the finance company should be contacted to establish the options for ending the agreement early.

The company will apply to HM Revenue & Customs to have its VAT registration cancelled, using form ‘VAT 7′. A final VAT return will need to be completed, and there may be a VAT payment due.

A final payroll will be run for all of the staff. They will be issued with P45s. At some stage the company will need to make a final P35 return of payroll information to HM Revenue & Customs.

Any of the directors and the company secretary may wish to resign, though at least one director should remain in place to deal with the closure. Remaining as an unpaid director of the company should not affect their own personal taxes in any way.

Close/Shut down a limited company

 A final set of accounts will need to be prepared, and submitted to HMRC. They should be informed that the company has stopped trading and has no further taxable income, so that they do not object to the company being closed down.

It is not usually practical to prepare the final set of accounts immediately after the company has stopped trading, as there may be some final expenses in the following weeks or months that may need to be included.

Any corporation tax should be paid from the company bank account. The company generally has 9 months from the close of business to pay this tax, but the company cannot be closed down until it is paid.

It should be clear by now that it is rarely possible to have the process fully wrapped up within a few weeks of making the decision to close down the company. It is normal to leave the company almost dormant over a period of months, while all the formalities are dealt with.

Any money or equipment left in the company after all these expenses have been met should be paid out to the shareholders in proportion to their shareholdings, unless there are alternative provisions in the articles of association. The company should consider making an application to use the Revenue’s Extra Statutory Concession C16, which treats all such final payments as capital gains instead of dividends, as this may result in less tax being due.

Once 3 months have passed since the business closed, the directors will be able to make an application to Companies House under Section 652a of the Companies Act to have the company struck off. Companies House make a charge of £10 for this, and the 652a application form can be downloaded from their website.

As an alternative to the company being fully closed down, it can remain ‘dormant’ on the register. Leaving the company dormant typically costs less than £100 per year, and it means that it can be used again, for any other purpose, without any delay or set-up cost. It also serves to reserve the company name for future use, and an older company has slightly more financial credibility than one that has just been incorporated. If the company is not going to be used for at least 3 years, then it is usually more cost effective to close it down, and then incorporate another company if one is needed.

APJ Accountancy -  a team of Chartered Certified Accountant regulated and monitored by The Association of Chartered Certified Accountants (ACCA).
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What should I do if my contract is caught within IR 35?

Accounting Tips for Contractors:

We often get asked about the best way to extract money from a limited company if contract is caught by IR 35.

First and foremost, the only way to be sure whether your contract falls inside or outside IR35 is to have it review by professional accountant firm who are specialised in Contractor Accountancy services.
Note : At APJ Accountancy, we offer this free within our standard package service

And by the way, it works on a contract by contract basis. So, for one contract you may fall under IR35 but for some others you may be outside.

Be aware that every contractors need to be evaluated on their own merits and every contract can be different.

If you aren't sure, you can take the 10 minute Contractor IR35 Test to see if you are likely to be working under IR35 from HMRC website yourself. Click this link to know more information that you need to know about IR35 -  http://www.hmrc.gov.uk/ir35/guidance.pdf

What is the best method to pay yourself?

How to Pay Yourself inside and outside IR35?

Going back to your question the best method to pay yourself, in simple terms

• For Income from all contracts that fall outside scope of IR 35 – you can pay yourself combination of small salary and big dividend to maximise your tax savings.

• For income related to contracts that fall inside scope of IR 35 – You may need to pay some additional PAYE and National Insurance on the taxable income from these contracts at the end of the financial year.

So your company will continue you pay you as usual throughout the year deducting PAYE and NICs as applicable.

At the end of the tax year you will need to check you have paid the right amount of tax and NI by calculating the deemed employment payment due on the IR35 contract(s) undertaken.

If you don’t know much about deemed payment then a step-by-step guide for and related NICs can be found on the HMRC website.

HMRC also have a IR35 ‘deemed salary’ calculation spreadsheet which can be downloaded. Click link to download the spreadsheet. www.hmrc.gov.uk/ir35/ir35.xlt 

Alternatively, contact us to discuss how we can be of help in calculating your IR35 contract(s) ‘deemed salary’ and NIC liabilities.

Visit www.apjaccountancy.com/contractor-accountant.html for more information.

Are you a contractor working under IR35 ? Let us know how you do the salary payment. Feel free to post your thoughts as comments below and share it with your friends.

What expenses can you claim for in your limited company?

The main rule is “an allowable expense should be wholly, exclusively and necessarily incurred in the performance of your day to day business.” Any direct expense incurred running your business should be claimed, there are some expenses that you might think meet the criteria but are unfortunately not allowable, such as entertainment and professional attire.

However, if you are operating as a limited company you can pay for these expenses through the business, but you won’t be able to claim relief against corporation tax. Be careful that you do not trigger a benefit in kind from the company if you are claiming chargeable items.

We have briefly detailed below common expenses that most business suffer:

Limited Company Expenses

Wages/ Directors Remuneration

It is tax efficient to pay yourself, as a director, a salary to utilise your personal allowance.  You could also consider paying your partner a salary, only if they work in the business and have some personal allowance available.  Current rates can be found on HMRC’s website http://www.hmrc.gov.uk/rates/it.htm.

Naturally staffing costs are an expense to your business, along with the employers national insurance contributions.

Pension Contributions

Pensions are a good tax planning tool, they help you extract funds from your company and are also an allowable expense for corporation tax, only if you have an employer’s contribution scheme.

Telephone, Mobile and Broadband

If you use these for your business then you should claim the expense. Ideally the expense should be paid directly by the company , remember if the expense is paid personally and not wholly for the business, then only the business element should be claimed. If you claim the whole amount you would trigger a benefit in kind if there is personal use.

Hotels and accommodation

If you are travelling around the country/globe visiting clients then the cost of your hotels are an expense to your business. If you are travelling for business and pleasure, the pleasure amount must be incidental to the trip for it to be an allowable expense.

If you are working abroad for a long period of time there are circumstances when you can claim the costs of your partner coming out to visit you.

Depending on the circumstances you can claim a flat rate (without a receipt) of between £5 and £20 per night, depending on where in the world you have travelled to for work, as incidental expenses to cover food etc. However, with the rising costs of food you might be better off claiming the actual costs rather than the flat rate allowance.

Living accommodation

If you (a director), or one of your employees stays away from home during the week, because your client is based too far away to travel each day, then the hotel cost is also allowable. However, if for convenience you stay there for the weekend, you should only claim the expense for when you are there working.

You can also, if it is cheaper, rent a property rather than paying hotel charges. Again, if you are staying there 7 nights, but only working 5 days, then the 2 days should not be claimed as a business expense. Also, if you are renting for more than two years then the area you are staying in is then deemed your home and becomes a non-allowable expense.

Mileage Claim

It is normally more tax effective to claim mileage rather than buying a car through the company, mainly due to fuel rate charges and benefit in kind issues. You can claim 45p per mile for the first 10,000 miles and 25p thereafter. Remember you need to keep a mileage log showing all of your business miles.

The 2 year rule also applies here, if you travel to the same clients address, more than circa 60% of your time, then after 2 years HMRC deem this as commuting and is a disallowable expense.

Motorbikes and cycle bikes

As with a car you can also claim mileage for a motor bike, which is 24p per mile and 20p per mile for a cycle bike. Don’t forget to log your miles, even cycling to the bank for business is allowable.

Other travel expenses

Train, bus and taxis are all allowable expenses if you use these to visit clients, or for other business trips such as seeing your accountant or bank manager. Car hire and parking changes can be also claimed.
If an employee receives a parking ticket whilst working, then this fine can be paid by the company and claimed as a tax deductible expense. Note that parking tickets are only an allowable expense for employees, not a sole trader.

Subsistence

Although we all have to eat, there are a few circumstances where you can claim your daily meal as an expense in the UK.  If you are staying away from your home overnight then a reasonable evening meal is allowable also you can claim if your business journey is outside your normal pattern of work such as leaving before 7am. Alternatively, you can claim a flat rate of £5 per night depending on your circumstances and reasons for working away.

Accountancy fees

Of course our fees are a tax deductible expense, but only the business element. If your personal tax return is included then a benefit in kind is triggered unless an adjustment is made in your director’s loan account when the annual accounts are prepared.

Entertainment

NOT ALLOWABLE, but remember that if you are entertaining clients you can claim the expense back but the company cannot claim the tax relief. This is a useful tax planning tool if you personally are a higher rate tax payer.

Don’t forget that the company is allowed to spend £150 per employee, per year, for a festive party. If the cost is more than £150 then the whole amount becomes disallowable. If the party is going to cost more than £150, it is recommended that the directors pay the difference personally so that the £150 is still available as an expense.

Training and development

The rule here is that you can claim for maintaining/enhancing your skills required in the business but not the acquisition of new skills. For example an IT contractor going on a computer course is allowable, but learning to become an aeroplane pilot would not be allowable.

Advertising

If you are advertising and marketing your business these expenses are allowable. Examples would include yellow pages and Google ad words. Don’t forget to claim any costs involved in social media and networking.

Companies House fees

Paying your annual filing fee is an allowable expense.  Some accountants include this fee in their fixed priced
accountancy packages.

Bank Charges and loan interest

If you are charged bank fees, then these can be claimed, along with the interest charged on borrowings in the company name, including loans and overdraft facilities. Factoring charges are allowable and any bank management fees or arrangement fees can be claimed.

Professional Subscriptions

If you are a member of a professional body, which relates to the trade, your annual subscription is allowable, along with any continuing professional development to maintain the membership.

Reference books and Journals

If you need reference books or journals to support your trade or part of your training, then you should pay for and claim these in the company.

Eyesight tests

This is a tax deductible expense for limited companies.  You can claim for the eye test and normally the lenses, but not the frames.

Office stationery and postage

All your paper clips, pens and paper can be claimed, not forgetting the huge cost of postage. Luckily emails are free! Couriers can be claimed, along with other sundry office costs such as cleaning, loo roll and tea and coffee supplies.

Computer Equipment

As computers rarely last more than 2 years, any PC’s, laptops and ipads used for business can be claimed. Currently you can use your annual investment allowance to claim the whole expense in the year of purchase.

Computer software, depending on its life span, can be either claimed as an expense or capitalised and included in the annual investment allowance claim. However, as software is normally upgraded yearly these items can normally be expensed.

Use of home as an office

If you maintain an office/storage facility at home, then HMRC allows you to claim £3 per week without any proof of expenses. Alternatively you can calculate a percentage and time in use, this proportion of the total household expenses can be claimed. For example if you use a spare room and you have a 3 bedroom house plus a lounge and kitchen, you can claim 20% of your household bills to include, mortgage interest, buildings insurance, gas, electricity, council tax and any other expense incurred in running your home. However when claiming use of home as an office, if this proportion of the home is permanently used as an office then it is not eligible for principle private residence relief and subject to capital gains tax if you sell your property and make a gain.

Office furniture and any machinery

Your office chair, desk and cupboards can be expensed in the same way as computer equipment, the same is true of any machinery used in the production of goods.

Legal and professional fees

If you require the help of a solicitor and if their service is related to the trade of the business then the expense is allowable. If it relates to capital items, then the costs need to be capitalised along with the capital expenditure. If you are paying for legal work to raise capital or drawing up shareholder agreements, then these costs are also disallowable.

Professional fees such as business coaches/consultants etc are also allowable.

Repairs and renewals

General maintenance of your property is allowable, such as light bulbs, fixing broken equipment etc. However improvements/renovations should be capitalised and added to the base cost of the property.

Leasing of equipment

Lease or buy is sometimes a difficult decision, leasing is an allowable expense for corporation tax and is very useful for cash flow. If you have used your annual investment allowance for the year it will take you some years to benefit from the capital investment of new equipment, thereby leasing an asset gives you tax relief sooner.

Clothing

Business clothing is not allowable, as there is the possibility of dual purpose, without boring you with case law about a lawyer not being able to claim their black robes, the only clothing that is allowable is protective clothing, such as steel toe cap boots and high visibility jackets.

Insurances

All of you insurance products are allowable expenses, such as professional indemnity and public liability insurance. You can also claim key man insurance and certain types of life insurances. The general rule is if the pay out of a claim is taxable then then premium will be tax deductible.

Business gifts

Food and drink are not allowable, however a gift of under £50, with your corporate branding on, can be claimed. A nice corporate umbrella or pen will be fine.

Company Formation fees

The initial cost of forming a company can be paid by the business, or reimbursed to the director, but this expense is not allowable for corporation tax.

Franchise Fees

If you are purchasing a franchise fee over a period of time, then you need to check whether the initial fee can be claimed in the first year or amortised over its useful life, i.e. the franchise period.

Goodwill

Purchased goodwill can be amortised over its useful life and is normally a tax deductible expense, however there are situations where this is not possible, normally when there is a related party individual. You can also claim the goodwill created on incorporating your sole trader business or partnership into a limited company. Please contact us for more details on how this would work. This is only possible for trades started after April 2004.

This list is intended only as a guide for individuals running a limited company. The list of expenses is not exhaustive as each company will different circumstances, so we recommend you seek professional advise to compliment this. If you have any questions on whether you can claim a specific expense, please contact one of our accountants

If you have more questions on Small Business Accounting, Contract Tax planning or more, feel free to contact us