Poor Business Performance: How to Close a Company and Handle Outstanding Taxes?
- TBA
- Jan 8
- 4 min read
Updated: Mar 13
Starting and running a business does not guarantee smooth sailing or profits every year. If your company faces challenges, such as prolonged losses or an inability to meet its financial obligations, you may need to consider closing it down.
In the UK, how can a business owner close a company?
And if there are outstanding tax debts, can they simply be ignored?
Closing your company
Generally, to close a limited liability company in the UK, you must obtain the consent of the company’s directors and shareholders. There are several ways to close a company, depending
on whether your company can pay its bills—in other words, whether it is solvent or insolvent.
If your company is solvent
When a company can pay its bills, the directors may decide to close the company for reasons such as retirement, exiting a family business with no successor, or simply not wishing to continue operations. In this case, you can choose one of two methods:
Apply to strike off the company
Members’ Voluntary Liquidation (MVL)
If your company is insolvent
When a company is insolvent, the interests of creditors take precedence over those of directors or shareholders. Depending on the circumstances, you can:
Place the company under administration
Apply to strike off the company
Liquidate the company via:
Creditors’ Voluntary Liquidation (CVL)
Compulsory Liquidation (initiated by a court)
Below, we focus on the various procedures for closing an insolvent company and what steps directors must take.
Placing the Company Under Administration
If your limited liability company or limited liability partnership (LLP) is heavily in debt and unable to repay it, you can place the company under administration.
This process allows you to pause operations and gain breathing room to potentially avoid liquidation. During this time, directors are protected from legal action by creditors.
Entering administration:
Appoint an Administrator: This must be a licensed insolvency practitioner. Once appointed, the administrator takes control of the company and its assets.
Administrator’s Plan: The administrator has 8 weeks to prepare a plan outlining how they will proceed. This plan is shared with creditors, employees, and Companies House.
Possible Outcomes:
Negotiate a Company Voluntary Arrangement (CVA) to allow continued operation.
Sell the business as a going concern to preserve jobs and customer relationships.
Liquidate the company’s assets to repay creditors.
Close the company if no other options are viable.
Applying to strike off the company
You can apply to remove your company from the Companies Register if it meets certain conditions:
No trading or stock sales in the past 3 months
No name changes in the past 3 months
No ongoing liquidation processes
No creditor agreements, such as a CVA
If these criteria are not met, liquidation will instead be required.
Liquidating the company
Creditors’ Voluntary Liquidation (CVL)
When a company is insolvent and cannot recover financially, directors may voluntarily liquidate the company. This process requires the appointment of a licensed insolvency practitioner.
Steps for CVL:
Call a Shareholders’ Meeting: A resolution to liquidate must be passed with 75% shareholder approval (by value of shares).
Appoint a Liquidator: This person will oversee the liquidation process.
Notify Companies House: The resolution must be filed within 15 days.
Advertise the Resolution: Publish it in The Gazette within 14 days.
Compulsory Liquidation
If debts are unpaid, creditors can apply to the court to force your company into liquidation. The court may issue a winding-up order, and creditors can seize assets to recover debts.
Your options after receiving a court order:
Repay the debt
Negotiate a repayment plan, such as a CVA
Place the company into administration
Voluntarily liquidate the company
Challenge the court’s decision
If no action is taken within 14 days, creditors may seize assets or force liquidation.
Handling outstanding taxes
If you owe taxes to HMRC, you must address them carefully and promptly.
HMRC is a priority creditor, meaning tax debts must be paid before other creditors during the liquidation process.
What happens if you ignore your tax debts?
HMRC may:
Visit your premises to assess the situation.
Assign a debt collection agency to resolve unpaid taxes.
Take enforcement actions, such as:
Seizing business assets.
Collecting funds directly from your business bank account.
Pursuing court actions to recover debt.
Obtaining third-party debt orders to recover payments owed to your company.
Severe cases
HMRC can petition for compulsory liquidation if taxes remain unpaid. Additionally, directors may face investigations, disqualification from holding directorships for up to 15 years, or personal liability for company debts.
Individual criminal charges may also apply in cases of fraud or tax evasion.
Some advice from TB Accountants
Closing a company in the UK involves complex legal and financial procedures.
Seeking professional advice from accountants or insolvency practitioners is highly recommended to ensure compliance and minimise risks. This includes:
Preparing accurate financial records.
Managing cash flow during liquidation.
Closing accounts with HMRC to prevent future legal issues.
For further assistance we recommend that you consult with a professional accounting team to explore your options and navigate the closure process smoothly.