Over the past few weeks, we’ve had several conversations with business owners who are already thinking about what comes next.
One client has been working outside their company for over a year and is now planning to close it down. Another recently mentioned they’ll probably “wrap up” their business in the next 12 months.
It reminded me just how many business owners assume closing a company is simply a case of filing in a few forms and switching off the lights.
In reality, it could be one of the biggest financial decisions you ever make.
Planning early can save you money
The earlier you start planning, the more options you’ll usually have. Leaving everything until the company has stopped trading can limit the choices available and, in some cases, lead to paying more tax than necessary.
Every business is different, but some of the areas worth considering include:
The most tax-efficient way to extract any remaining profits
Whether dividends should be taken before the company is closed
Whether the company can simply be struck off or whether a Members’ Voluntary Liquidation (MVL) should be considered
How Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) may affect the tax you pay
The timing of any final salary, dividends or capital distributions
For example, if your company has built up significantly retained profits, MVL may allow those funds to be treated as capital rather than income, which can produce a very different tax outcome. However, it’s not the right solution for every business and should always be considered alongside your individual circumstances.
It’s not just about tax
Closing a company also means thinking about:
Paying suppliers and collecting outstanding debts
Cancelling contracts and subscriptions
Closing payroll and VAT registrations where appropriate
Making sure all statutory obligations have been met before the company is dissolved
A little planning can make the whole process far smoother and avoid some expensive surprises.
Our advice?
If you think there’s a chance you’ll retire, move into employment or close your company within the next few years or so, don’t wait until the final few weeks. The best time to start planning your exit is usually long before you actually stop trading. Every situation is different, but getting advice early often gives you more flexibility, more options and, in many cases, a better tax outcome. If you’re beginning to think about closing your company, we’d be happy to help you explore the options available and put together a plan that’s right for you.