If you’re reading this, you must be thinking of closing down a business. Is that right?
Whether it’s changed circumstances in your personal life, financial struggles, new and more rewarding opportunities or any other reason, making a decision to close down a business or stop being self-employed in general is never easy.
As we understand how heartbreaking or possibly relieving closing down a business can be, we have created this guide that will make the process less stressful.
I’m closing down a business. Is there a point in speaking to a business advisor?
Absolutely!
There are a number of things you need to do when closing down a business. Depending on whether you’re a sole trader or closing a limited company, this can include informing HMRC, sending a Self Assessment tax return or applying to get the company struck off the Register of Companies and more.
A business advisor can guide you through the whole process and help you avoid any penalties.
Also, if the reason you’re closing down a business is related to a lack of knowledge, a business advisor will be able to share that knowledge with you or point you in the right direction by suggesting suitable training.
Speaking about the problems your business is facing or things that worry you the most with a professional can turn things upside down. After receiving advice you might change your mind, create an action plan and give your business another chance!
If you’re thinking of closing down a business and would like to speak to one of our business advisors, contact us here!
What you need to do when closing down a business
As mentioned earlier, the things you must do depend on whether you’re self-employed or run a limited company, so let’s have a look at each of them separately.
How to stop being self-employed
If you decide to stop being self-employed or are ending or leaving a business partnership, you must tell HMRC about your decision and send a final tax return.
If you earn £1,000 or less in a tax year as a sole trader, you don’t need to be registered with HMRC. In this case, tell HMRC you stopped being self-employed on 5th April – the end of the tax year.
You also must send a Self Assessment tax return before the deadline. If your partnership is ending, the nominated partner also needs to send a final Partnership Tax Return.
When sending a tax return, you’ll need to:
- Work out your trading income
- Add up your allowable expenses. This can include costs involved with closing down a business, such as phone, internet and postage costs of letting people know about this decision
- Calculate your capital allowances. This includes any balancing charges if you’ve sold business equipment or machinery
- Work out if you owe Capital Gains Tax
- Calculate your final profit or loss
Did you know that you might be able to reduce your final tax bill?
You could do so by claiming:
- Entrepreneurs’ Relief that reduces the amount of Capital Gains Tax you have to pay. To find out more about it, visit here
- Overlap relief can prevent you from being taxed twice on your profits if you stop trading during the tax year
- Terminal loss relief – this offsets a loss made in your last tax year against your profit in the 3 previous tax years
You can find more information about overlap and terminal loss relief here.
Moreover, if you or your partnership are registered for VAT, you need to cancel that registration; if you employ people, you need to close your PAYE scheme and send final payroll reports to HMRC; if you’re registered and stop trading as a contractor or subcontractor, you must call the CIS helpline as soon as possible.
And what happens if you’re insolvent?
If you’re insolvent, you’ll usually be personally liable for your business debts. Your creditors (people you owe money to) can take you to court or make you bankrupt if you don’t pay.
How to close down a limited company?
To close a limited company, you need to have the agreement of your company’s directors and shareholders. Also, the way you close the company depends on whether it can pay its bills or not.
If the company can pay the bills (is solvent)
In this case, you can either apply to get the company struck off the Register of Companies or start a members’ voluntary liquidation. If you’re looking for the cheapest way to close your business, striking off the company is usually the best option.
If the company can’t pay the bills (is insolvent)
In this case, the interests of the creditors legally come before those of the directors or shareholders.
Depending on the circumstances, there are a few options you can choose from to close your business:
- Put your company into administration. This can mean your company doesn’t have to pay all the debts in full. However, your company can still be wound up
- Apply to get your company struck off the Companies Register
- Arrange creditors’ voluntary liquidation
If you aren’t sure which option is best for your business, you should seek professional advice from a solicitor or insolvency practitioner.
If you don’t pay creditors, your company might be forced into compulsory liquidation. You might be able to avoid liquidation by applying for a Company Voluntary Arrangement.
What happens if you’re closing down a business with no director?
If you’re planning on closing down a business that doesn’t have a director, you will need to appoint a new one. Shareholders must agree to appoint a new director and may need to vote on it.
Once appointed, the new director can close the company.
It’s worth noting that Companies House will eventually strike off a company that has no director. However, this can make it more difficult to manage any company assets. Also, even if there’s no director, your company still needs to pay corporation tax and file a tax return.
You can let the company become dormant
Did you know that closing down a business that is no longer trading isn’t compulsory?
You can let it become dormant for tax as long as you want. This means your company will still be registered at Companies House and you will still have to send your annual accounts and confirmation statement.
You can let your company become dormant only if it’s no longer:
- Carrying on business activity
- Trading
- Receiving income
How to feel better after closing down a business?
While some people might feel relieved after closing down a business and are ready to get back to ‘normal life’ straight away, for others, closing down a business means only one thing – failure.
It’s not a surprise that having to say goodbye to a business you have put so much time, work and money into can make you feel like you have failed.
It’s completely normal to feel emotional at this stage. But it’s important to not let those feelings affect your confidence or self-worth.
Here are some tips that will make you feel better after closing down a business:
Take time to reflect and remember positive things
After closing down your business, take time to reflect on your journey.
Try to remember all the positive emotions that you have experienced. Remember things such as your first sale and reviews from happy customers. Think about how much you have grown as a person, how much you have learnt and how it will benefit both your personal and professional future.
Remember that running a business isn’t for everyone. That’s why the fact that you have done it should be something you’re proud of!
And if you think that you weren’t a good entrepreneur just because you had to close down your business, remember that a good entrepreneur isn’t the one who can only run and grow their business without any mistakes. A good entrepreneur is also one who is realistic and understands when things don’t go right direction anymore and it’s time to back out.
Make a strategy for moving forward
Legally closing down a business isn’t always the end, especially if you have some financial commitments and debts.
This is another reason you can’t take your emotions to take over! You still need to think like a business owner and make a plan for how you’re going to pay off those debts.
And even if you don’t have any debts, your life doesn’t end the second you close down a business. That’s why you need to start thinking about what you want to do next.
Whether you are going back into employment or maybe have a new business idea because you simply can’t imagine working for someone else anymore, you need to create a strategy that will help you achieve your goals.
Having a clear plan of what your next steps are will reduce stress and give you something to focus on. This means you won’t even have time to think about the failure of your business!
Find something you’re passionate about
We understand that your business was your passion and you might feel like there isn’t another thing that you will be as passionate about.
But it’s not true!
It’s very important not to isolate yourself. Spend time with your friends and family, ask what they do during their time off and ask if you could join them. While trying all different things you will find something you enjoy and want to do more of!
And if you still love the industry your business was trading in, you can find a job in another company and continue doing what you do best without the additional stress and responsibilities of running a business.
