How to Close a Micro Entity Company Properly in the UK?

In the UK, closing a small company may seem easy, but doing it incorrectly can lead to penalties from HM Revenue and Customs (HMRC). If you are operating a small business in the UK, understanding how to close a micro entity company properly is important to ensure you close it legally and correctly. Also, it should be closed in full compliance with HMRC and Companies House requirements. This guide explains how you can strike off a micro company step by step. Read the blog thoroughly and follow the steps mentioned to ensure compliance with UK obligations and avoid any penalties.

What is a Micro Entity Company in the UK?

First off, what is a micro entity company? It is a very small, limited company that meets at least two of the following:

• Annual turnover of not more than £1 million
• 10 employees or fewer
• A balance sheet total of £500,000 or less

Micro entities benefit from simplified accounting rules. But when it comes to closing them, they must follow legal procedures with both HMRC and Companies House.

What Does Dissolution of a Company Mean?

Before discussing how to close a micro entity company properly, it is important to understand the concept of company dissolution. It is the formal process of closing a business and terminating its legal existence. When a company is dissolved, it officially ceases to exist and can no longer operate. You can go through a voluntary dissolution process, where you voluntarily dissolve your business by filing a DS01 strike-off application. In this case, you formally terminate the legal existence of the corporation in its state of incorporation or formation. The other type is involuntary dissolution, where the government asks you to close the company due to non-compliance, like not paying taxes.

How to Close a Micro Entity Company Properly Online

Here are the steps you need to follow in closing a micro-enity company:

Step1. Choose the Right Method

It is crucial to choose the right method before closing your company. There are three ways to end your company, including:

• Voluntary Strike off (dissolution)
• Members’ voluntary liquidation (MVL)
• Creditors’ Voluntary Liquidation (CVL)

Voluntary Strike Off is the most common method for micro entities with no debts. You can apply if your company is no longer trading, it has no outstanding debts, and has not traded, sold assets, or changed its name within the last 3 months. MVL is used when your company is solvent and has significant retained profits. You need a licensed insolvency practitioner, and it is often used for tax-efficient closure. Whereas, CVL is used when the company cannot pay its debts. It is controlled by an insolvency practitioner, and assets are sold to repay creditors. Remember, choosing the right method is an essential part of how to close a micro entity company properly.

Step 2: Prepare the Company For Closure

The next step is to prepare your company for closure. Before applying to close, ensure all your affairs are in order. For example, settle all debts by paying your suppliers and lenders. Submit your final Corporation Tax and VAT (if registered). Furthermore, deal with assets by transferring or selling them. Don’t forget to withdraw the remaining funds legally. If you have employees, issue final payslips and submit final Pay As You Earn (PAYE) reports.

Step 3: File Final Accounts and Taxes

Another key part of how to close a micro entity company properly is to ensure you complete your final filings to HMRC. You must complete your final Corporation Tax Return, file the Company Tax Return (CT600), and notify the termination of trading. At the same time, you must submit your final micro-entity accounts to the Companies House. Also, inform them that the company is dormant or has stopped trading.

Step 4: Close All Tax Registrations

If your company is registered for taxes, like VAT registration, PAYE scheme, and CIS registration, you must formally cancel them. Always wait for confirmation from HMRC before proceeding to dissolution.

Step 5: Submit DS01 Form

If your company is using voluntary strike off, you need to complete form DS01 for Companies House. It is the official way to close your company. The DS01 form must be signed by the majority of the directors, and you must pay the Companies House application fee. Remember to notify all interested parties, like employees, creditors, and shareholders. Visit the official government website for a detailed DS01 form guide.

Step 6: Gazetting Process

Once your application is approved, Companies House will publish a notice in The Gazette. If no one objects, then a second notice is published after two months, and then your company is officially dissolved.

Step 7: Close Business Accounts

The last step of how to close a micro entity company properly is to close your business bank accounts and securely retain your company records. After receiving the confirmation notification of your microentity company dissolution, close the business bank account. Nonetheless, keep financial records for at least 6 years and keep proof of dissolution for future reference. This step ensures compliance and protects you from future issues. Remember, failing to follow these steps is one of the most common mistakes in how to close a micro entity company properly.

How Long Does It Take to Dissolve a Company?

In the UK, dissolving a company depends on the method you choose. However, if you are a micro entity company and are using voluntary strike off, the process is predictable. If you are following the standard route, the company dissolution generally takes 3 months. However, if the process is complex, it can take more time. Moreover, if you are following other closure methods, such as Members’ Voluntary Liquidation, it can take 3 to 6 months. The time can extend if assets are complex. If you are using the Creditor’s Voluntary Liquidation method, it can take 6 months to 1 year, depending on creditor negotiations and asset sales.

How Much Does It Cost to Close a Micro Entity Company?

Understanding how to close a micro entity company properly is important. At the same time, it is also crucial to learn how much it costs to close a company. The cost of closing a limited company varies a lot, depending entirely on your chosen method to close your company and whether your company has debts or assets. If you are a micro entity with no debts and choose Voluntary Strike Off, the cost is way too low compared to MVL. If you use MVL for your solvent company, it has an expensive upfront cost, but it is often more tax efficient. And, if you use CVL, the cost can go even higher.

What is the Difference Between Liquidation and Dissolution?

If you are discussing how to close a micro entity company properly, you should understand the difference between dissolution and liquidation. Although these terms are often interchangeable, they refer to two very different stages in closing a company. Liquidation refers to closing the company’s finances. It involves paying off creditors, selling company assets, and distributing any remaining funds to shareholders. On the other hand, dissolution refers to the closing of the company’s existence. Once a company is dissolved, it is removed from the Companies House register, and it can no longer trade.

Can I Reopen a Previously Dissolved Company?

Yes, you can reopen your previously dissolved company. However, the process of restoring the company can be complicated. Company restoration depends on how and when the company was closed. It is done through administrative restoration or court order, requiring you to file form RT01 and pay the required Companies House and legal fees. Remember, you can only apply to Companies House for company restoration if the company was struck off the register and dissolved by the Registrar of Companies within the last 6 years. Moreover, your company was trading at the time it was dissolved.

The Bottom Line

Understanding how to close a micro entity company properly is important for UK businesses that want to exit legally. Whether you choose a liquidation route or a voluntary strike, you need to ensure all legal and tax obligations are fully settled before applying to close the company. Follow the correct process and submit the proper Companies House forms to close your micro entity company smoothly. Still unsure about the process and need assistance? We have got you covered. At MicroentityAccounts, we have the most affordable plans starting from £5+ VAT.   We offer a fixed monthly package with no hidden costs for micro-entities in the UK to keep the costs simple and predictable.