Declare limited company dormant or close?

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Call us biased, but we think contracting is the best way to make the most of your career and reap all the rewards your expertise deserves.

That being said, there may come a time when you receive a permanent job offer that’s too good to turn down or you start to think about retiring. Alternatively, you might just decide to take a break from trading for a while.

Whatever your circumstances, there a couple of things you can do with your company, depending on how long you’re going to be out of the game for.

If you just want to take a few months off, you’d be better off making your limited company dormant. This option lets you keep your business ticking over and avoids the process of closing down completely.

However, if you decide to make the move back to permanent employment and you don’t imagine you’ll be going back to contracting any time soon, the only real option is to bite the bullet and shut down.

Whatever you need to do, this guide explains the processes you need to know.

Making your limited company dormant

A dormant limited company is classed as one that has had “no significant accounting transactions” during an accounting period. It can’t be active or liable for Corporation Tax.

That being said, there are three types of transactions a dormant company can make. They are:

  • Payments for shares taken by subscribers to the Memorandum of Association
  • Fees paid to the Registrar of Companies
  • The settling of a civil penalty

Any other activity could see your company viewed active, meaning you’d be liable for additional taxes and would have to comply with the usual deadlines and responsibilities of a company director.

How do I make my limited company dormant?

To make your company dormant, you first need to tell your Corporation Tax office, clients and agents that you’ll no longer be trading. You’ll also have to chase any unpaid invoices and prepare final accounts up to the usual financial year end. Once that’s done, you can then wind up payroll by notifying the relevant tax office.

All business bank accounts must then be closed, especially those bearing interest. Finally, it’s important to terminate your contracts with service providers, such as telephone and broadband suppliers.

Will I have any obligations when my company is dormant?

Just because your business is no longer trading, doesn’t mean you get off scot-free when it comes to your duties. You’ll still need to submit Confirmation Statement to Companies House and provide abbreviated accounts for each financial year that you remain dormant.

It’s also important to maintain a registered office address. This can be your home, a rented service address or where your accountant is based. Remember though, any payments made for these services can’t come from your dormant company.

How long can I keep my limited company dormant?

Although there’s no set time limit for keeping your company in a dormant state, you should perhaps consider shutting it down if you are not anticipating to trade for more than a couple of years. You can always set up a new business if you want to restart your contracting career further down the line.

What if I decide to start trading again?

When the time comes to start your company back up, you’ll need to let HMRC know that you’re operating again within the first three months of trading. Accounts should also be sent to Companies House within nine months of your company’s year end, while Corporation Tax needs to be settled within nine months and one day of the same period.

Finally, a company tax return (including full statutory accounts) is required within 12 months of your year end.

Closing your limited company

If you really can’t see yourself returning to contracting any time soon, the best thing to do is to shut down your business. To do this, you’ll first of all have to set a closing date and make sure all outstanding transactions (such as paying invoices) are completed ahead of this time.

You’ll then need to let HMRC know that you’re closing and de-register from VAT and PAYE (if applicable), before running a final payroll to get a P45. The next step is to prepare your final company accounts, calculate your Corporation Tax and then pay it to HMRC.

Any remaining profits can usually be taken as a final dividend payment or capital distribution. It’s a good idea to get advice from the experts as there are some pretty complex rules to think about that could have a huge effect on your tax bill.

The final step is to submit a DS01 form to Companies House. They will advertise the dissolution of your company to make sure nobody objects – this usually takes around three months.

How can ClearSky Contractor Accounting help?

We hope we’ve shed some light on how to close your company or make it dormant. If you’d like a bit more information, we’re here to help.

At ClearSky Contractor Accounting, we're with you all the way through your contracting career – even when it comes to an end. Our dedicated team of experts will take care of all the hassle, so you can be sure everything’s taken care of.

To get in touch, please call 0800 032 5326 or email enquiry@clearskyaccounting.co.uk.

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