How to dissolve your limited company from £10.00
If your limited company is no longer required, for example if the company was set up for a specific project which has now finished, you can apply to have it struck off from the register at Companies House.
This brief guide relates to striking off formerly trading companies which have now stopped trading and are no longer required. It does not refer to a formal insolvency process.
To quote Companies House …
“A private company can apply to be struck off if, in the previous three months, it has not:
- traded or otherwise carried on business;
- changed its name;
- for value, disposed of property or rights that, immediately before it ceased to be in business or trade, it held for disposal or gain in the normal course of its business or trade (for example, a company in business to sell apples could not continue selling apples during that three-month period but it could sell the truck it once used to deliver the apples or the warehouse where they were stored);
- engaged in any other activity except one necessary or expedient for making a striking-off application, settling the company’s affairs or meeting a statutory requirement (for example, a company may seek professional advice on the application, pay the costs of copying the Form 652a, etc). However, a company can apply for striking off if it has settled trading or business debts in the previous three months.”
This course of action, known as a Section 652 striking off, is applicable where all creditors have been paid and final accounts and tax computations have been prepared, otherwise creditors can oppose the striking off and alternative, more expensive methods of dissolving the company would need to be taken.
Other things to consider before an application is made include closing the company’s bank account, transferring domain names, paying any professional fees involved with the striking off etc. These should be done before you apply for striking off, otherwise the assets may become the Crown’s property (see below) .
For example if your company ceased trading on 31 July 2008, you can apply under S652 from 1 November 2008. You can (and should) however distribute the assets prior to this date.
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Maximise use of your basic rate tax band
I originally posted this article on the a4uforum in March 2007, and have updated it for the current tax thresholds.
As you know the end of the tax year is fast approaching and now is the time to consider maximising the use of your basic rate band. This can be done by declaring interim dividends to take your total taxable income upto the maximum at which the basic rate will still apply.
As dividends have a 10% tax credit attached, this tax credit can be used to effectively pay your personal tax liability on the dividend.
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A quick guide for your new limited company
Getting at your profits
Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. In order to pay a dividend the company must have sufficient after tax profits. ie for a £10k dividend to be paid the company must have approx £12.7k pre tax profits (corp tax rate of 21%).
Do not be tempted to withdraw more than is legally available as dividend, as it would be “illegal” and HMRC may class it as a salary or a loan to the director (taxable benefit in kind if over £5k) and charge tax & NIC.
For more on how to extract your profits in a tax efficient way, read our article “Save tax and National Insurance with your limited company”.
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Loans to directors - form p11d
It is illegal under current company law for companies to make loans to its directors unless it is an advance to pay company expenses. The loan must also be approved by the shareholders and repaid within 6 months. HMRC consider loans to directors as benefits in kind and the interest chargeable at the HMRC standard rate is taxable and must be reported on form P11d by 6th July. Fines are chargeable by HMRC if the forms are not received by 19th July.
Furthermore, if the loan is not repaid within 9 months after the year end, the company must pay corporation tax on the loan which will only be refunded if the loan is repaid. Unfortunately the tax is not actually refunded as it is offset against the company’s corporation tax liability for the accounting period in which the loan is repaid. This is obviously not good for the company’s cashflow.
However, if the loan is below £5000, then under current HMRC rules, no benefit in kind applies.
