Closing a company is a significant decision, and timing it right can save you from unexpected complications and financial setbacks. For many business owners, completing the process by the end of the tax year on 5 April is a strategic choice.

Aligning the closure with the tax calendar can simplify financial reporting, settle tax obligations promptly, and provide a clear endpoint for your business operations. Whether you’re winding up for financial reasons, concluding an entrepreneurial chapter, or moving on to new ventures, ensuring the process is smooth and efficient is essential.

Why Closing Before the Tax Year Ends Is Beneficial

Completing the closure by 5 April aligns all financial and tax obligations with the current tax year. This makes preparing and filing your accounts easier and ensures you settle Corporation Tax, VAT, and any other outstanding payments without overlapping into a new reporting period.

It can also help you take advantage of tax reliefs, such as terminal loss relief or Business Asset Disposal Relief, which may reduce your tax liabilities. Acting within the current year avoids the need for additional filings and eliminates the risk of penalties for late submissions.

By closing before the new tax year, you also free yourself from unnecessary expenses, such as preparing another year’s accounts or renewing registrations and licences. It’s a straightforward way to tie up loose ends and start afresh.

Preparing for the Closure

The first step in closing your company is preparing your final accounts and informing HMRC. This ensures your financial records are up to date and that you’ve met all tax obligations before moving forward.

Mark your accounts as “final” and include them with your last Company Tax Return. You’ll also need to deregister for VAT and settle any outstanding Corporation Tax. If your company has employees, ensure that final wages, redundancy payments, and National Insurance contributions are handled in line with legal requirements.

Selecting the Right Method of Closure

There are two main options for closing a solvent company: striking off or a Members’ Voluntary Liquidation (MVL). Choosing the right method depends on your company’s financial position and the complexity of its affairs.

Striking Off

Striking off is the simpler and more cost-effective option. You can apply to remove your company from the Companies Register by submitting a DS01 form to Companies House. This process costs around £44 and typically takes around two months.

Before applying, you must notify all shareholders, creditors, employees, and other interested parties within seven days. Failure to do so could lead to penalties or objections, which could delay the process.

Members’ Voluntary Liquidation

An MVL is better suited to companies with significant assets or more complex financial arrangements. Directors must sign a declaration of solvency, confirming the company can pay its debts in full within 12 months.

This process requires the involvement of an insolvency practitioner, who will oversee the liquidation, distribute assets, and ensure compliance with legal requirements. While a more formal approach, it offers peace of mind and potential tax advantages, such as accessing Business Asset Disposal Relief.

Paying Debts and Distributing Assets

Once you’ve chosen the appropriate closure method, ensure all outstanding debts are cleared. This includes payments to creditors, final employee wages, and any taxes owed to HMRC.

After settling debts, distribute any remaining assets to shareholders. If you’re striking off the company, this must be done before submitting the DS01 form. Otherwise, any unclaimed assets could pass to the Crown under “bona vacantia” rules.

Timing the Process

Timing is critical to ensure a smooth closure by the end of the tax year. Striking off typically takes around two months, so it’s best to submit your DS01 form by early February to meet the April deadline.

For an MVL, engage an insolvency practitioner early to manage the necessary declarations and filings. Delays in starting the process could push the closure into the next tax year, creating additional financial and administrative burdens.

Final Steps

Once the closure is confirmed, close all company bank accounts and cancel any business registrations or licences. Notify HMRC that the company has officially ceased trading and ensure that all final filings, such as deregistering for Corporation Tax and VAT, are completed.

It’s also essential to retain company records, including financial statements and payroll documentation, for at least seven years, as the law requires. This ensures compliance and provides a record in case of future queries.

Final Thoughts

Closing a company by the end of the tax year is a practical way to simplify the process and minimise costs. By following the steps outlined above and planning carefully, you can ensure a clean break and a smooth transition. Seeking professional advice from an accountant or insolvency practitioner can help you complete the process efficiently and address any specific concerns.