To close a consultancy company, you either enter your company into a formal liquidation, or apply for the dissolution of your company. The most appropriate procedure to close your company will depend on its solvent position, its debt and asset level, the number of employees and the nature of the business and industry.

Why do you want to close your consultancy company?

You may want to close a consultancy company if it has unmanageable debt levels, it has come to the end of its useful life, or you want to extract the company’s maximum value. Due to the introduction of IR35 to the private sector, consultants operating through ‘personal limited companies’ working for a single client could potentially pay more tax.

For personal limited companies specifically, legislation introduced in April 2021 by HM Revenue & Customs (HMRC) may have a bearing on that decision.Before 2021, sole traders commonly operated ‘consultancy companies’ as limited companies while working for a single client. These were referred to as ‘personal limited companies’. Doing so meant those contractors could pay less tax than through being employed by their client or operating as a self-employed sole trader.

On 6th April 2021, HMRC rolled IR35 out to the private sector. Originally due to roll out in 2020, coronavirus delayed it.

What is IR35?

IR35 is legislation designed to make those operating through ‘personal limited companies’ pay appropriate amounts of tax and National Insurance contributions for their work.

Having to pay more tax means owners of these ‘personal limited companies’ may wish to close that company and either seek contracted employment with their client or continue operating as a sole trader.

How we can help close your consultancy company

When choosing to close a consultancy company, its solvent position will influence what closure procedures it can undergo. A company is considered insolvent when its liabilities outweigh its assets, and it cannot repay its debts when they fall due.

Contact us for free, impartial advice from our experienced team of advisors, who will help you decide the best route forward for you and your company.

• Close and liquidate your solvent company via a Members Voluntary Liquidation (MVL)
  An MVL is the liquidation and closure of a solvent company. The procedure would formally wind up and close your company, whilst extracting its maximum value, through its various tax benefits. The clubs assets, including the premises, are realised, with the remaining funds distributed to shareholders once creditors are satisfied.
  More on Members Voluntary Liquidations
• Close your company down via a Creditors Voluntary Liquidation (CVL) 
  A CVL is a liquidation procedure for companies that are insolvent. The process will formally close and liquidate your company, ceasing its trading operations, realising any assets, and removing the threat of creditor legal action. If your company has employees, they can claim for redundancy and other statutory entitlements through the government’s Redundancy Payment Service (RPS). The process is final and irreversible. Once completed, your company’s unsecured debt will be written off and the company is dissolved, allowing you, the director, to move on.
  More on Creditors Voluntary Liquidations
• Close your company down and start again via a pre-pack liquidation 
  A pre-pack liquidation is a type of CVL where the sale of your company’s assets is arranged before liquidation, allowing business operations to continue seamlessly under the purchasing company. The company name may be reused, and employees can transfer under TUPE. Contracts and essential agreements can also be included as part of a sale, ensuring minimal disruption to your business operations. This process eliminates the unsecured debts of your previous company, providing a fresh start free from previous unsecured liabilities.
  More on Pre-pack Liquidations

In summary

With IR35, consultancy contractors operating out of ‘personal limited companies’ for a single client may find themselves paying more tax than if they were in full-time employment or self-employed. If you no longer wish to operate within that structure, you can close a consultancy company via a liquidation, either solvent or insolvent depending on its circumstances. Speak to us for free, impartial advice tailored to your circumstances.

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