1. Introduction
Closing a business is never an easy decision, but sometimes it’s the right move. Whether you’re a sole trader, partnership, or limited company, knowing how to close a business UK legally and correctly is essential. The process varies depending on your business structure, debts, and future plans.
2. Closing a Sole Trader Business
If you’re self-employed:
- Notify HMRC that you’ve stopped trading.
- Submit a final Self-Assessment tax return.
- Pay any outstanding Income Tax and National Insurance.
- Deregister for VAT (if applicable).
- Keep records for at least 5 years.
3. Closing a Partnership
For partnerships:
- Inform HMRC the partnership is ending.
- Submit a final partnership tax return.
- Each partner must file a personal Self-Assessment.
- Pay off outstanding debts and distribute remaining assets.
- If there’s a partnership agreement, follow the terms.
4. Closing a Limited Company
Option 1: Voluntary Strike Off (if debt-free)
- Suitable if the company hasn’t traded for 3 months.
- Apply to Companies House using form DS01.
- Pay a small fee (£10–£20).
- Inform shareholders, creditors, and employees.
- Company is removed from the register and ceases to exist.
Option 2: Members’ Voluntary Liquidation (MVL)
- Used if the company is solvent but has significant assets.
- Requires a licensed insolvency practitioner.
- Distributes assets to shareholders.
Option 3: Creditors’ Voluntary Liquidation (CVL)
- Used if the company is insolvent (cannot pay debts).
- Directors call in an insolvency practitioner.
- Assets are sold to repay creditors.
Option 4: Compulsory Liquidation
- Forced by creditors through a court order.
- Usually the last resort if debts remain unpaid.
5. Responsibilities When Closing a Business
- Employees: Pay redundancy, final wages, and holiday pay.
- Taxes: Submit final returns to HMRC and pay corporation tax (if applicable).
- Creditors: Inform and settle outstanding debts.
- Assets: Sell or distribute business assets legally.
- Records: Keep financial and tax records for the required period (usually 6 years for companies).
6. Costs of Closing a Business
- Sole Trader/Partnership: Minimal, mainly tax settlement.
- Voluntary Strike Off: Around £10–£20.
- MVL: Around £3,000–£5,000 in professional fees.
- CVL: Typically £4,000–£7,000, depending on complexity.
7. Common Mistakes to Avoid
- Not informing HMRC or Companies House.
- Failing to settle tax or creditor obligations.
- Ignoring employee redundancy rights.
- Closing bank accounts too early before debts are cleared.
Frequently Asked Questions
1. How do I close my small business UK?
Notify HMRC, pay outstanding taxes, and file final returns. Limited companies must also inform Companies House.
2. How much does it cost to close a limited company UK?
A voluntary strike off costs around £10–£20, while liquidation can cost several thousand pounds.
3. Do I still pay tax after closing my business?
Yes, you must pay final tax owed on profits before closure.
4. Can I reopen a business after striking it off?
Yes, but you’ll need to restore the company to the register, which can be costly.
5. How long does it take to close a company UK?
A strike off usually takes 3–6 months. Liquidations can take longer.
6. What happens to business debts when closing?
For sole traders, personal liability remains. For limited companies, debts are written off after liquidation unless directors gave personal guarantees.
Conclusion
Knowing how to close a business UK depends on your business structure and financial position. Sole traders and partnerships need to notify HMRC and file final returns, while limited companies must follow strike-off or liquidation procedures. By handling debts, taxes, and employee rights correctly, you can close your business legally and minimise future risks.